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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. City of Kenai v. Cook Inlet Natural Gas Storage Alaska, LLC (5/6/2016) sp-7101
Notice: This opinion is subject to correction before publication in the P ACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
CITY OF KENAI, )
) Supreme Court No. S-15682
Appellant, )
) Superior Court No. 3KN-12-00338 CI
v. )
) O P I N I O N
COOK INLET NATURAL GAS )
STORAGE ALASKA, LLC; STATE )
OF ALASKA, DEPARTMENT OF
) No. 7101 - May 6, 2016
NATURAL RESOURCES; and )
COOK INLET REGION, INC., )
)
Appellees. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Kenai, Carl Bauman, Judge.
Appearances: Bruce E. Falconer and Patrick W. Munson,
Boyd, Chandler & Falconer, LLP, Anchorage, for Appellant.
Matthew Findley and Eva R. Gardner, Ashburn & Mason,
P.C., Anchorage, for Appellee Cook Inlet Natural Gas
Storage Alaska, LLC. John C. Hutchins, Assistant Attorney
General, and Craig W. Richards, Attorney General, Juneau,
for Appellee State of Alaska, Department of Natural
Resources. Jahna M. Lindemuth and Katherine E. Demarest,
Dorsey & Whitney LLP, Anchorage, for Appellee Cook Inlet
Region, Inc.
Before: Stowers, Chief Justice, Winfree, Maassen, and
Bolger, Justices. [Fabe, Justice, not participating.]
MAASSEN, Justice.
----------------------- Page 2-----------------------
I. INTRODUCTION
This case involves competing claims of right to the pore space in a large
limestone formation about a mile underground. Cook Inlet Natural Gas Storage Alaska,
LLC (CINGSA) has leases with the holders of the mineral rights - the State of Alaska
and Cook Inlet Region, Inc. (CIRI) - that allow it to use the porous formation as a
reservoir for storing injected natural gas. But the City of Kenai, which owns a significant
part of the surface estate above the reservoir, claims an ownership interest in the storage
rights and sought compensation from CINGSA. CINGSA filed an interpleader action
asking the court to decide who owns the storage rights and which party CINGSA should
compensate for its use of the pore space. On summary judgment CINGSA argued that
CIRI and the State own the pore space and attendant storage rights because of the State's
reservation of certain subsurface interests as required by AS 38.05.125(a). The superior
court granted CINGSA's motion. The City appeals both the grant of summary judgment
and the superior court's award of attorney's fees to CIRI.
We affirm, concluding that the State and CIRI own the pore space and the
gas storage rights and that the superior court's award of attorney's fees to CIRI was
within its discretion.
II. FACTS AND PROCEEDINGS
A. Facts
1. The Cannery Loop Sterling C Reservoir Gas Storage Facility
The Cannery Loop Sterling C Gas Reservoir is located approximately a
mile below the Kenai River. The reservoir began producing natural gas in 2000; gas was
extracted from the "microscopic spaces between or within rocks" in the reservoir and
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from natural pools contained by "[s]urrounding formations of denser, nonporous rock."
1
The reservoir's gas supply was eventually depleted.
Once gas is extracted from sedimentary rock, the emptied pore space -
"microscopic spaces between or within rocks" - can be used to store "non-native gas,"
gas that has been extracted elsewhere. This method of gas storage can help stabilize
supply and accommodate seasonal fluctuations in demand; utilities can store non-native
gas in the summer and withdraw it in the winter when demand is higher. When the
Sterling C Reservoir had been economically depleted, CINGSA, a public utility,
proposed to convert the gas field into a storage facility for non-native gas owned by other
gas and electric utilities in Southcentral Alaska.
CINGSA first had to acquire the necessary property rights from the owners
of different interests in the surface and subsurface. It acquired many of those rights
through negotiation and, where necessary, the process of eminent domain, available to
CINGSA as a public utility. The only surface estate at issue here is that belonging to the
2 The rights to minerals underlying
City of Kenai, amounting to approximately 576 acres.
the property belong to the State of Alaska and Cook Inlet Region, Inc. because of mineral
1 The reservoir has been described as "nearly" or "mostly depleted." This
case is not concerned with the level of native gas left in the reservoir; the City's
argument is that it owned the pore-space rights once the reservoir was "no longer
economi[cally productive]." A gas field is said to be economically depleted when there
is not enough pressure left in the field to produce the gas economically given current
technology.
2 The City owns mineral rights and storage rights in other, smaller parcels in
the reservoir, but those rights are not at issue in this case, which involves only those
claims that compete with the interests of CIRI and the State.
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reservations required by the Alaska Land Act. 3 CINGSA concluded that the State and
CIRI held title to the pore space because they owned the mineral rights, and in 2011 it
therefore sought and obtained leases from those entities.
2. Ownership of the surface and mineral estates
a. The surface estate
The City of Kenai received a patent for the relevant surface acreage in
1964, subject to the reservation of rights to the State required by AS 38.05.125(a) for all
4
conveyances of State land.
The mineral reservation in the patent recites the statutory
language almost verbatim.
In 1973 the State granted oil and gas leases in the property and other
surrounding lands to Marathon Oil Company. The leases reserved the State's right to
5 as well as the State's "right [as the Lessor] to authorize the
dispose of the surface estate,
subsurface storage of oil or gas . . . in order to avoid waste or to promote conservation
of natural resources."
b. The mineral estate
CIRI received its rights to the subsurface estate under a three-way
agreement with the State and the federal government pursuant to the Alaska Native
3 See AS 38.05.125(a) ("Each contract for the sale, lease, or grant of state
land, and each deed to state land, properties, or interest in state land, . . . is subject to the
following reservations . . . .").
4 The State had acquired both the surface and subsurface rights from the
federal government under the Alaska Statehood Act in 1963. The federal land patent to
the State was subject to three preexisting oil and gas leases covering the CIRI property.
5 As relevant here, that right had already been conveyed to the City.
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6
Claims Settlement Act (ANCSA). The ANCSA-related land transfers, whichtook place
in 1980, had as a predicate step the State's reconveyance to the United States of "all of
the [State's] right, title and interest, to the subsurface estate" in the property. A few
months later the United States conveyed "the subsurface estate" of the property to CIRI.
Both deeds - first from the State to the federal government, then from the federal
government to CIRI - were subject to "all valid existing rights therein, if any,"
specifically listing the Marathon oil and gas leases.
Accordingly, CIRI received the lands subject to the City's preexisting
interest in the surface estate. As successor lessor of the Marathon leases, CIRI received
royalties from the gas Marathon extracted.
3. The City of Kenai's claim that it owned the gas storage rights in
the property
After CINGSA secured its leases of gas storage rights in the Sterling C
Reservoir from the State and CIRI, the City asserted its own claim to the ownership of
those rights. But the City allowed the storage project to go forward pending
negotiations, granting CINGSA a conditional right of entry in the meantime. The right
of entry provided that should "either the City of Kenai or CINGSA, in its sole
discretion," determine that the parties were not making progress in negotiations,
CINGSA would file an action in eminent domain and allow the courts to decide the
ownership issue.
B. Proceedings
The parties were unable to resolve their disagreement about gas storage
rights, and CINGSA filed a complaint against the City in March 2012, seeking
alternative forms of relief. In the first count of its complaint, CINGSA sought to acquire
6 43 U.S.C. §§ 1601-1629h (2015).
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by condemnation "a gas storage easement and an easement upon the mineral interests"
owned by the City in the Sterling C Reservoir. In another count, CINGSA interpleaded
CIRI and the State as defendants in order "[t]o prevent double or multiple liability" given
the "overlapping claims for compensation by CINGSA for use of the [property] for
natural gas storage," and it asked the court to decide the party or parties CINGSA owed
compensation. CINGSA also sought a "declaratory judgment confirming that the City
[held] no property interest in the [gas storage rights]"; an alternative judgment that if the
City did hold those rights CINGSA should be granted an easement by condemnation,
with just compensation to the City; and - as an alternative to condemnation if the City
held those rights - reformation of CINGSA's leases with the State and CIRI so that
CINGSA was not obliged to pay those entities for rights that were legally the City's.
1. Summary judgment
CIRI and the City cross-moved for summary judgment on whether the City
owned the gas storage rights. The State and CINGSA joined CIRI's motion, endorsing
CIRI's position that the storage rights belonged to the State and CIRI rather than the
City. The superior court granted summary judgment in favor of CINGSA, the State, and
CIRI. It concluded that "the State reserved to itself the mineral estate, which includes
the underground storage rights," and that "[t]he rights the City received [from the State]
regarding the property in question were surface estate rights."
CINGSA and the City filed a stipulation - later approved by the superior
court -to resolveallremainingcondemnationissues "regardingauthority andnecessity,
possession and just compensation and entry of final judgment against the property rights
held by the City." The superior court entered final judgment in favor of CINGSA, the
State, and CIRI.
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----------------------- Page 7-----------------------
2. Attorney's fees
CIRI moved for an award of attorney's fees against the City, seeking 20%
of its reasonable actual fees under Alaska Civil Rule 82(b)(2). The City opposed the
motion, arguing that CINGSA had initiated the suit, bringing in CIRI as a party "in its
sole discretion," and that the City had not alleged any claims against CIRI that could
make the City liable for CIRI's fees. But the superior court concluded that CIRI was
entitled to attorney's fees under Rule 82(b)(2) because it prevailed on the main issue in
the case: "that CIRI owns the subsurface gas storage pore spaces in dispute." The
superior court found that the amount of work done by CIRI's attorneys was reasonable,
but it awarded an amount less than the scheduled 20% because it found that CIRI's
Anchorage-based attorneys charged at rates higher than those customarily charged in
Kenai Peninsula communities.
The City appeals the superior court's decision on summary judgment and
its award of attorney's fees and costs to CIRI.
III. STANDARDS OF REVIEW
"We review a superior court's decision on summary judgment de novo,
drawing all inferences in favor of, and viewing the facts in the record in the light most
favorable to, the non-moving party." 7
We review "a superior court's determination of
8
prevailing party status and attorney's fees for abuse of discretion." We will find an
abuse of discretion "if the award is 'arbitrary, capricious, manifestly unreasonable, or
7 Pebble Ltd. P'ship ex rel. Pebble Mines Corp. v. Parnell , 215 P.3d 1064,
1072 (Alaska 2009).
8 BP Pipelines (Alaska) Inc. v. State, Dep't of Revenue, 327 P.3d 185, 189
(Alaska 2014) (quoting State v. Jacob, 214 P.3d 353, 358 (Alaska 2009)).
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----------------------- Page 8-----------------------
9
stemmed from improper motive.' " "We review the interpretation of Alaska Civil Rules
governing the award of costs and attorney's fees de novo." 10
IV. DISCUSSION
The central issue in this case is the ownership of the pore space when the
mineral and surface estates have been severed, as they commonly are under Alaska's
11
mineral reservation statute, AS 38.05.125, a provision of the Alaska Land Act. There
9 Wagner v. Wagner , 183 P.3d 1265, 1266-67 (Alaska 2008) (quoting Ware
v. Ware, 161 P.3d 1188, 1192 (Alaska 2007)).
10 R &Y, Inc. v. Municipality of Anchorage, 34 P.3d 289, 300 (Alaska 2001).
11 The specific language of the reservation is important to the discussion that
follows. AS 38.05.125(a) states in full:
Each contract for the sale, lease, or grant of state land, and
each deed to state land, properties, or interest in state land,
made under AS 38.05.045-38.05.120, 38.05.321,
38.05.810-38.05.825, AS 38.08, or AS 38.50 except as
provided in AS 38.50.050 is subject to the following
reservations: "The party of the first part, Alaska, hereby
expressly saves, excepts and reserves out of the grant hereby
made, unto itself, its lessees, successors, and assigns forever,
all oils, gases, coal, ores, minerals, fissionable materials,
geothermal resources, and fossils of every name, kind or
description, and which may be in or upon said land above
described, or any part thereof, and the right to explore the
same for such oils, gases, coal, ores, minerals, fissionable
materials, geothermal resources, and fossils, and it also
hereby expressly saves and reserves out of the grant hereby
made, unto itself, its lessees, successors, and assigns forever,
the right to enter by itself, its or their agents, attorneys, and
servants upon said land, or any part or parts thereof, at any
and all times for the purpose of opening, developing, drilling,
and working mines or wells on these or other land and taking
(continued...)
- 8 - 7101
----------------------- Page 9-----------------------
is a notable lack of consensus in the courts and among legal scholars on the issue of
11 (...continued)
out and removing therefrom all such oils, gases, coal, ores,
minerals, fissionable materials, geothermal resources, and
fossils, and to that end it further expressly reserves out of the
grant hereby made, unto itself, its lessees, successors, and
assigns forever, the right by its or their agents, servants and
attorneys at any and all times to erect, construct, maintain,
and use all such buildings, machinery, roads, pipelines,
powerlines, and railroads, sink such shafts, drill such wells,
remove such soil, and to remain on said land or any part
thereof for the foregoing purposes and to occupy as much of
said land as may be necessary or convenient for such
purposes hereby expressly reserving to itself, its lessees,
successors, and assigns, as aforesaid, generally all rights and
power in, to, and over said land, whether herein expressed or
not, reasonably necessary or convenient to render beneficial
and efficient the complete enjoyment of the property and
rights hereby expressly reserved.
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12
pore-space ownership. This is our first opportunity to address the issue; we do it in the
unique context of Alaska's land laws.
A. The Superior Court Properly Granted Summary Judgment To CIRI,
The State, And CINGSA Because AS 38.05.125(a) Reserves The
Natural Gas Storage Rights To The State.
The City contends that as the owner of the surface it also owns the
underlying pore space or natural gas storage rights. According to the City, the superior
court erred when, in granting summary judgment to the other parties, it reasoned that (1)
determining ownership of the storage rights is a question of statutory rather than deed
interpretation; (2) the reserved rights under AS 38.05.125(a) include natural gas storage
rights; and (3) the "American rule" - by which the surface owner owns the rights to
underground spaces that have been depleted of their minerals - did not apply.
12 See James Robert Zadick, Note, The Public Pore Space: Enabling Carbon
Capture and Sequestration by Reconceptualizing Subsurface Property Rights , 36 W M.
ARY ENVTL. L. & POL'Y REV. 257, 270 (2011) ("Courts and scholars have
& M
infrequently and inconsistently treated the pore spaces." (footnotes omitted)); Victor B.
Flatt, Paving the Legal Path for Carbon Sequestration from Coal , 19 D UKE ENVTL. L.
OL'Y F. 211, 233 (2009) ("There is no clear consensus on whether the ownership of
& P
the pore space lies with the surface estate or the mineral estate, and consideration of these
rights varies significantly from state to state."); 4 N ANCY SAINT-PAUL, S UMMERS OIL &
GAS § 53:13, 418-20 (West 2009) ("Regardless whether underground gas storage rights
are acquired by voluntary conveyance or by condemnation of the land, control and
ownership rights involving the depleted storage reservoir . . . have often been the subject
of litigation." (footnote omitted)); see also 1 HOWARD R. W ILLIAMS & C HARLES J.
MEYERS, O IL & G AS LAW § 222, 335-36 & n.11 (Lexis 2015) ("We urge . . . adoption
of the view that the mineral severance should be construed as granting exclusive rights
to subterranean strata for all purposes relating to minerals, whether 'native' or 'injected,'
absent contrary language in the instrument severing such minerals.").
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1. The superior court properly addressed the ownership of storage
rights as a question of statutory interpretation.
The State patents conveying the land at issue to the City recited verbatim
the reservation of mineral rights that AS 38.05.125(a) generally requires. The City
argues that the superior court, when determining whether the parties intended to convey
or to reserve the pore-space rights, should have interpreted these reservations using rules
of deed interpretation rather than statutory interpretation. We interpret the language of
a deed using a three-step process: We first "look at the four corners of the document to
see if it unambiguously presents the parties' intent"; if it is ambiguous, we next "consider
'the facts and circumstances surrounding the conveyance' to discern the parties' intent";
and finally, "[i]n the event that the parties' intent cannot be determined, we rely on rules
13
of construction."
As for statutes, we interpret them "according to reason, practicality,
and common sense, taking into account the plain meaning and purpose of the law as well
14
as the intent of the drafters."
We conclude that statutory reservation language in an instrument of
conveyance is governed by the rules of statutory interpretation. "A patent cannot convey
what has been reserved by law."15 Because patents "are to be given effect according to
13 McCarrey v. Kaylor , 301 P.3d 559, 563 (Alaska 2013) (quoting Estate of
Smith v. Spinelli , 216 P.3d 524, 529 (Alaska 2009)).
14 Marathon Oil Co. v. State, Dep't of Nat. Res., 254 P.3d 1078, 1082 (Alaska
2011) (quoting Native Vill. of Elim v. State, 990 P.2d 1, 5 (Alaska 1999)).
15 Leo Sheep Co. v. United States, 570 F.2d 881, 888 (10th Cir. 1977) rev'd
on other grounds, 440 U.S. 668 (1979) ("The absence of an express reservation in the
patent did not negative the implied reservation in the earlier grant. A patent is merely
evidence of a grant, and the issuing officer acts ministerially, not judicially."); see also
Swendig v. Wash. Water Power Co., 265 U.S. 322, 332 (1924) (holding that patents
issued "without a reservation did not convey what the law reserved"); Chugach Natives,
(continued...)
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----------------------- Page 12-----------------------
16
the laws and regulations under which they were issued," courts have consistently
applied rules ofstatutoryinterpretation to determinethescopeofcontractualreservations
17 Accordingly, mineral reservations required by federal statutes are
required by statutes.
interpreted in light of the apparent intent of Congress, not the intent of the parties to the
instrument.18
The language of AS 38.05.125(a) relevant here - that "[e]ach contract for
the sale, lease, or grant of state land, and each deed to state land, . . . is subject to" the
15 (...continued)
Inc. v. Doyon, Ltd., 588 F.2d 723, 727 n.13 (9th Cir. 1978) (noting that "the conveyance
of public land by a deed from the United States requires a different analysis than would
be the case with private parties contracting for the conveyance of private land in which
the seller reserves the subsurface or mineral estate"); Proctor v. Painter, 15 F.2d 974,
975 (9th Cir. 1926) (holding that although the patent did not include language reserving
coal, it did not convey coal because Congress did not authorize it).
16 Swendig, 265 U.S. at 332.
17 See, e.g., BedRoc Ltd. v. United States, 541 U.S. 176, 183-87 (2004)
(reserving to the United States all coal and other "valuable minerals" in lands under the
Pittman Underground Water Act); Watt v. W. Nuclear, Inc., 462 U.S. 36, 55-60 (1983)
(reserving to the United States all "minerals" under the Stock-Raising Homestead Act);
Crow Tribe of Indians v. Peters, 835 F. Supp. 2d 985, 990 (D. Mont. 2011) ("Because
neither the patent nor the statute pursuant to which it was issued expressly addresses the
mineral owner's use of the surface, the Court looks to rules of statutory construction for
guidance.").
18 See, e.g., Amoco Prod. Co. v. S. Ute Indian Tribe, 526 U.S. 865, 875-78
(1999) (interpreting a statutory reservation of coal based on Congress's intent);
McCarrey, 301 P.3d at 564-67 & n.18 (looking to the statute's language and purpose in
a dispute between private parties about whether a reserved right of way required by
federal statute survived the statute's repeal); see also Tracy Bateman Farrell et al., 53A
AM. J UR. 2 D Mines and Minerals § 38 (2016) ("The proper inquiry in interpreting
mineral reservations in land grant statutes focuses on the ordinary meaning of the
reservation at the time such statutes are enacted by Congress.").
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19
statutory reservation - is mandatory. A court attempting to discern only the parties'
intent with regard to the meaning of the reservation of rights could well fail to effectuate
20 We must
the legislative purpose behind the statute that requires that reservation.
therefore consider AS 38.05.125(a) in determining the scope of the rights reserved in the
State's patent to the City.
2. Interpreting AS 38.05.125(a) to include the reservation of
natural gas storage rights is consistent with the statute's plain
language and purpose.
AlaskaStatute38.05.125(a) requires that "[e]achcontract for thesale, lease,
or grant of state land, and each deed to state land, properties, or interest in state land" be
made subject to the State's reservation of the rights to listed natural resources: "all oils,
gases, coal, ores, minerals, fissionable materials, geothermal resources, and fossils of
every name, kind or description, and which may be in or upon said land above
described." The statute also requires the reservation of rights of entry for exploration
and the extraction of minerals, the reservation of surface rights necessary to support
extraction, and a catchall reservation of "generally all rights and power in, to, and over
19 See Hayes v. A.J. Assocs. , 960 P.2d 556, 559 (Alaska 1998) ("As required
by AS 38.05.125(a), the patent expressly reserved mineral rights to the State."); Parker
v. Alaska Power Auth. , 913 P.2d 1089, 1090 (Alaska 1996) ("Alaska Statute 38.05.125
reserves minerals from every land grant.").
20 See Elizabeth A. McClanahan et al., Title Issues: Beyond Amoco v.
Southern Ute, REG.&D EV.O F COALBED METHANE 3-1, 2-8 (Rocky Mtn. Min. L. Found.
2002) ("The primary difference between the federal land and private land cases is that
the federal land cases involve interpretation of patent language and congressional intent.
The private land cases look to intent of the parties and the more traditional legal
doctrines within the courts' jurisdictions."); 3 AMERICAN LAW OF MINING § 61.05[7],
at 61-26 (Rocky Mtn. Min. L. Found. 2d ed. 2015) (noting that in addressing the issue
of whether a resource is a mineral reserved to the state "[t]he general rule is that the
intent of the legislature will be dispositive").
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said land, whether herein expressed or not, reasonably necessary or convenient to render
beneficial and efficient the complete enjoyment of the property and rights hereby
21
expressly reserved."
The City contends that gas storage rights are unambiguously outside the
scope of the statutory reservation because the statute reserves only "specific, identified
natural resources" and the "various rights that facilitate exploitation of those [identified]
natural resources." The City argues further that use of the pore space to store non-native
gas does not further "exploration, development or removal of oil, gas, coal or other
minerals reserved by the State." In short, according to the City, the statute reserves only
"specifically identified natural resources in the land and the right to make use of the land
to aid in the development and extraction of those resources," not "a place or location -
22
the 'subsurface' " - that would include non-mineral pore space.
"To establish the meaning of a statute, we examine both its text and its
23 We give statutory language a " 'reasonable or common sense construction,
purpose."
consonant with the objectives of the legislature.' The intent of the legislature must
21 AS 38.05.125(a).
22 The City also relies on AS 34.15.070(a), which provides that "[a]
conveyance of real estate passes all the real estate of the grantor, unless the intent to pass
a less estate appears by express terms or is necessarily implied in the terms of the grant."
But a conveyance containing the statutory reservation very obviously intends to pass less
than "all the real estate of the grantor." The question we face is thus one that
AS 34.15.070(a) does not help answer - one that depends instead on the proper
interpretation of AS 34.05.125(a).
23 Marathon Oil Co. v. State, Dep't of Nat. Res., 254 P.3d 1078, 1083 (Alaska
2011).
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----------------------- Page 15-----------------------
24
govern and the policies and purposes of the statute should not be defeated." We
"presume[] that the legislature intended every word, sentence, or provision of a statute
to have some purpose, force, and effect, and that no words or provisions are
25 We also apply the rule of statutory interpretation that "[a]mbiguities in
superfluous."
public land grants are 'resolved strictly against the grantee and in favor of the
government.' "26 This interpretive rule again highlights the distinction between statutory
and deed interpretation: "Public legislation is construed broadly in favor of the
government which made the grant; no rights pass by implication," while "[c]onversely,
ambiguities in private deeds reserving mineral rights are construed strictly against the
grantor, who is also normally the draftsman."27
Examining the text and purpose of AS 38.05.125(a), we reject the City's
argument that rights to the pore space were not reserved to the State. We conclude that
pore space is mineral and therefore within the express reach of the statutory reservation
of "all . . . minerals . . . of every name, kind or description." And storage rights in a
"specific[] identified natural resource[]" are included by the statute's further reservation
"generally [of] all rights and power in, to, and over said land, whether herein expressed
24 Mech. Contractors of Alaska, Inc. v. State, Dep't of Pub. Safety , 91 P.3d
240, 248 (Alaska 2004) (quoting Mack v. State , 900 P.2d 1202, 1205 (Alaska App.
1995)).
25 Nelson v. Municipality of Anchorage, 267 P.3d 636, 642 (Alaska 2011)
(quoting Mech. Contractors of Alaska, Inc., 91 P.3d at 248).
26 McCarrey v. Kaylor, 301 P.3d 559, 563 (Alaska 2013) (quoting State,
Dep't of Highways v. Green, 586 P.2d 595, 603 n.24 (Alaska 1978)).
27 Loren L. Mall, Federal Mineral Reservations, 20 ROCKY MTN. M IN. L.
NST . 399, 410 (1975) (footnote omitted).
I
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or not, reasonablynecessary or convenient to render beneficial and efficient thecomplete
enjoyment of the property and rights hereby expressly reserved."
"Minerals" are not defined by the Alaska Land Act. Nor have we defined
the term in the context of AS 38.05.125(a), though we have stated that "[t]he question
28 Other courts have concluded that the meaning
of what is a mineral is a vexatious one."
of "minerals" is ambiguous and have interpreted the term broadly,29 an approach
consistent with the breadth of AS 38.01.125(a) generally.30
28 Norken Corp. v. McGahan , 823 P.2d 622, 627 (Alaska 1991).
29 See, e.g., Watt v. W. Nuclear, Inc., 462 U.S. 36, 43-47 (1983) (noting that
"mineral" was a broad and ambiguous term that could be interpreted as including "every
description of stone and rock deposit" and concluding that gravel constituted a mineral
reserved to the United States in a patent); id. at 42-43 ("[T]he word 'minerals' is 'used
in so many senses, dependent upon the context, that the ordinary definitions of the
dictionary throw but little light upon its signification in a given case.' " (quoting N. Pac.
R.R. Co. v. Soderberg, 188 U.S. 526, 530 (1903)); United States v. Union Oil Co. of Cal.,
549 F.2d 1271,1273-74 (9th Cir. 1977) (broadly defining "mineral" to encompass "[a]ll
elements of a geothermal system," including "magma, porous rock strata, even water
MERICAN LAW OF MINING, § 84.01[2], at 84-5 (Rocky Mtn. Min. L.
itself"); see also 3 A
Found. 2d ed. 2015) ("It is futile to search for a universally applied definition of
'minerals,' as the word is used in grants and reservations. . . . Thus, in most cases, the
answer to a dispute cannot be found simply by compiling a list of cases in which a
particular substance has been held to have been included, or not to have been included,
in grants and reservations by other persons, at other times, under other circumstances."
(footnotes omitted)). But see Bumpus v. United States , 325 F.2d 264, 266-67 (10th Cir.
1963) (finding the term "minerals" ambiguous in a declaration of taking by the United
States and concluding that gravel was not reserved as part of "other minerals" when the
declaration reserved to the owners of the subsurface estate "all oil, gas and other minerals
in and under said land").
30 See Hayes v. A.J. Assocs., 960 P.2d 556, 566 (Alaska 1998) (Shortell, J. pro
tem, concurring) (recognizing "[t]he breadth and completeness of the rights reserved and
activities authorized" by Alaska's statutory reservation).
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"Pore space" is defined as "microscopic voids within rocks that are
31
unoccupied by solid material";
pore space alone might thus be thought of not as mineral
32 But
but as "the absence of something - a void constituted by surrounding structures."
such an interpretation is too simplistic. Pore space is defined by and an inextricable part
of the rock strata in which it is found: "The matrices that create pore space and give it
form - such as dolomite, limestone, lignite, and sandstone - are certainly mineral in
character. Without these minerals, the pore space would not exist."33 Because porous
rock formations are mineral, the parts that make them up are also mineral, including the
microscopic pore space that constitutes much of these formations.34 And because
AS 38.05.125(a) broadly reserves "all . . . minerals," it reserves the constituent parts of
those minerals.
Such an interpretation is supported by the statute's apparent purpose. We
have recognized that "the overall purpose of the Alaska Land Act is to maximize revenue
35 and have interpreted sections of it as intended "to provide for orderly oil
for the state"
31 Kevin L. Doran & Angela M. Cifor, Does the Federal Government Own
the Pore Space under Private Lands in the West? Implications of the Stock-Raising
Homestead Act of 1916 for Geologic Storage of Carbon Dioxide, 42 ENVTL. L. 527, 530
(2012).
32 Id. at 541.
33 Id. (footnote omitted).
34 Id. at 541-42 ("An additional absurdity would also arise if we consider pore
space to be a discrete property interest capable of being separated from its mineral
structure because then every substance treated as a mineral . . . could not be extracted
without destroying the nonreserved property interest in the pore space").
35 Marathon Oil Co. v. State, Dep't of Nat. Res., 254 P.3d 1078, 1085 (Alaska
2011).
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36
and gas leasing that maximizes state return on its oil and gas resources." The State
identifies other statutory directives that imply a legislative concern with managing
surface and subsurface uses for the maximum development of each use with minimal
37 CIRI and the State thus argue that interpreting "minerals"
interference from the others.
to include pore-space rights better serves various legislative goals: Pore space itself is
a valuable State resource, its ownership is unnecessary to full enjoyment of the surface
estate, and treating pore space differently from the rest of the mineral estate would be
problematic for purposes of planning, leasing, and management.38 We agree that these
are relevant statutory purposes and that they are better served by interpreting the term
"mineral" to include the pore space in rock formations.
As CIRI points out, a number of federal cases have interpreted the term
"minerals" in the context of statutory mineral reservations. In Watt v. Western Nuclear,
Inc., the United States Supreme Court held that gravel found on lands patented under the
36 Chevron U.S.A. Inc. v. LeResche , 663 P.2d 923, 931 (Alaska 1983) (citing
AS 38.05.180(a)).
37 The State cites AS 38.04.005(b) (stating as policy that "the director . . .
shall seek to minimize the adverse effect of private settlement on wildlife, fishery,
mineral, timber, and other significant resources of the land" (emphasis added));
AS 38.04.015(2) (stating that one of "[t]he primary public interests in retaining areas of
state land surface in public ownership" is "to facilitate mining and mineral leasing by
managing appropriate public land for surface uses which are compatible with subsurface
uses"); and AS 38.04.065(b)(1) (directing the commissioner to "use and observe the
principles of multiple use and sustained yield").
38 Forexample, AS38.05.180(u) allows theDepartment ofNatural Resources
to "authorize the subsurface storage of oil or gas, whether or not produced from state
land, in land leased or subject to lease under this section," which authorizes and
encourages development of oil and gas resources on State lands. It also provides for
certain exemptions from lease payments otherwise due the State, for offsets against the
price charged for storage, and for reporting to the Regulatory Commission of Alaska.
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----------------------- Page 19-----------------------
Stock-Raising Homestead Act (SRHA) was a "mineral" reserved to the United States by
39
statute.
The Court began its analysis by observing that "the word 'minerals' is 'used
in so many senses, dependent upon the context, that the ordinary definitions of the
40 The Court
dictionary throw but little light upon its signification in a given case.' "
recognized narrow, broad, and potentially unlimited definitions of the term that would
lead to absurd results in the context of the SRHA.41 Ultimately, it concluded that the
term's definition could only be determined by reference to congressional intent.42 It
observed that "Congress' underlying purpose in severing the surface estate from the
mineral estate was to facilitate the concurrent development of both surface and
subsurfaceresources,"andthat"[w]hileCongress expectedthat homesteaders woulduse
the surface of SRHA lands for stockraising and raising crops, it sought to ensure that
valuable subsurface resources would remain subject to disposition by the United States,
under the general mining laws or otherwise, to persons interested in exploiting them."43
It concluded that "Congress could not have expected that stock-raising and raising crops
would entail the extraction of gravel deposits from the land"; therefore "the
congressional purpose of facilitating the concurrent development of both surface and
39 462 U.S. 36, 60 (1983).
40 Id. at 42-43 (quoting N. Pac. Ry. Co. v. Soderberg , 188 U.S. 526, 530
(1903)).
41 Id. at 43-44.
42 Id. at 46-47.
43 Id. at 47.
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subsurface resources is best served by construing the mineral reservation to encompass
gravel."44
Western Nuclear is instructive to the extent it shows how legislative
45 Like the
purpose drives the definition of "minerals" in different statutory contexts.
SRHA, the Alaska Land Act contemplates retained State control over potential mineral
wealth even as the surface estate passes to other parties for productive surface uses.
Because the statutory text and persuasive authority suggest a broad interpretation of the
term"minerals" in AS 38.05.125(a), and because interpreting "minerals" to include pore
44 Id. ; see also Rosette Inc. v. United States , 277 F.3d 1222, 1229-30 (10th
Cir. 2002) (holding that the SHRA mineral reservation reserved geothermal resources
even though they were not specifically named in the statute); United States v. Union Oil
Co. of Cal. , 549 F.2d 1271, 1273-74 (9th Cir. 1977) (holding that under the SRHA's
mineral reservation statute, "[a]ll of the elements of a geothermal system - magma,
porous rock strata, even water itself - may be classified as 'minerals' " (footnote
omitted)); cf. BedRoc Ltd. v. United States , 541 U.S. 176, 181-86 (2004) (holding that
mineral reservation in Pittman Underground Water Act, which reserved "valuable
minerals," did not extend to sand and gravel; unlike the SRHA reservation language at
issue in Western Nuclear , Congress in the Pittman Act "textually narrowed the scope of
[minerals] by using the modifier 'valuable' ").
45 The City seeks to distinguish Western Nuclear on a number of grounds,
contending that Hayes v. A.J. Assocs., 960 P.2d 556, 566 (Alaska 1998) rejected federal
law as an aid to interpreting AS 38.05.125(a). The section of Hayes on which the City
relies was joined by two justices of a four-member court. It found that the superior
court's analysis of the relationship between two federal statutes, the SRHA and the
Agricultural Entry Act of 1914, 30 U.S.C. §§ 121-22 (1988), was "not helpful" as a tool
to the interpretation of AS 38.05.125(a) and AS 38.05.130, "largely because we
consider[ed] Alaska's statutory scheme sufficiently clear" on the point at issue: the
viability of trespass claims by someone who has staked a mining claim but failed to
proceed with exploration or discovery. Id. at 565-66. Federal law continues to be useful
by analogy where Alaska law is less clear. And our reliance on Western Nuclear, as
noted above, is simply for its observation that courts' interpretation of "minerals" as a
statutory term depends on context and must be guided by the legislative purpose.
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----------------------- Page 21-----------------------
space is consistent with both the language and the purposes of the statute, we conclude
that pore-space ownership is reserved as part of the mineral rights reserved. And use of
that pore space as storage, even for non-native natural gas, is reserved as part of the
"rights and power in, to, and over said land . . . reasonably necessary or convenient to
render beneficial and efficient the complete enjoyment" of the State's other reserved
mineral rights. 46
3. The "American rule" does not apply.
Courtsfacingtheissueofpore-spaceownership haveconsidered "two main
theories": the American rule and the English rule.47
"[I]n the absence of language in the
severing deed dictating a different construction, the English and Canadian rule is that the
cavern which remains in the land after the hard minerals are mined is owned by the
mineral interest owner; the American view is that the cavern is owned by surface
48
owners." The City urges us to adopt the American rule. But we agree with the superior
court that case law applying the American rule is readily distinguishable and that
46 AS 38.05.125(a).
47 1 H OWARD R. W ILLIAMS & C HARLES J. M YERS, O IL & G AS LAW § 222,
331-33 (Lexis 2015) (citing as the "leading reported cases dealing with this matter":
Cent. Ky. Gas Co. v. Smallwood , 252 S.W.2d 866 (Ky. App. 1952) (applying the English
rule), overruled on other grounds by Tex. Am. Energy Corp. v. Citizens Fid. Bank &
Trust Co. , 736 S.W.2d 25, 28 (Ky. 1987); Dep't of Transp. v. Goike , 560 N.W.2d 365
(Mich. App. 1996) (applying the American rule); Tate v. United Fuel Gas Co. , 71 S.E.2d
65 (W. Va. 1952) (applying the American rule)); Thomas R. Decesar, Comment, An
Evaluation of Eminent Domain and a National Carbon Capture and Geologic
AKE FOREST L. R EV. 261,
Sequestration Program: Redefining the Space Below , 45 W
277 (2010) ("There is a split in the law between the American and English rules
regarding the ownership of pore space for natural-gas storage.").
48 Ellis v. Ark. La. Gas Co., 450 F. Supp. 412, 421 (E.D. Okla. 1978) aff'd,
609 F.2d 436 (10th Cir. 1979).
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applying the rule in this case is both unnecessary and inconsistent with AS 38.05.125(a).
The City cites Ellis v. Arkansas Louisiana Gas Co. as illustrating the proper
application of the American rule to gas storage rights. But the court in Ellis, with no
statutory reservation at issue, looked first and primarily to the intent of the private
parties as reflected in "the deeds which effect[ed] the severance" of the mineral estate;
the deeds used only words denoting "exploration, production and development," not
49 The court did cite the American rule as consistent
injection, occupation, or storage.
with the parties' intent to reserve to the surface owner everything other than the
expressly granted right to prospect for and produce natural gas, but it recognized that the
need to apply one of the presumptive rules arose only "in the absence of language in the
severing deed dictating a different construction."50 Other cases the City cites in support
51
of the American rule also turned on the specific terms of the particular conveyance.
49 Id. at 420.
50 Id. at 421.
51 See Emeny v. United States, 412 F.2d 1319, 1323 (Ct. Cl. 1969)
(interpreting leases that granted only "specified mineral exploration and production"
rights (oil and gas) "for the sole and only purpose of mining and operating," and
deciding that the "clear and unambiguous" leases did not grant a right of storage; the
landowners still owned "everything in such lands, except the oil and gas deposits[,] . . .
[which] included the geological structures beneath the surface"); Goike, 560 N.W.2d at
366 (applying "plain and ordinary meaning" of statutory term "fluid mineral and gas
rights" to determine that defendant landowners did not retain gas storage rights following
condemnation of their property for highway improvements); Burlington Res. Oil & Gas
Co. v. Lang & Sons, Inc., 259 P.3d 766, 770 (Mont. 2011) ("We analyze the deeds and
severance documents to determine who owns t he pore space."); Tate, 71 S.E.2d at 71
(deciding ownership of vacant space in limestone stratum by determining owner of
stratum, "[c]onsidering the entire deed with special attention to the language of the
exception and giving such language its plain meaning"); see also S. Nat. Gas Co. v.
Sutton, 406 So.2d 669, 671 (La. App. 1981) (stating that "[s]urface ownership . . .
(continued...)
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We reject the City's argument that the American rule applies to a
determination of the ownership of pore-space storage rights in a case, like this one,
involving a reservation of rights to the State under AS 38.05.125(a). Because the rights
at issue are governed by the terms of the statutory reservation, and because we interpret
that reservation as including pore-space storage rights, the superior court properly
determined that those rights belong to CIRI and the State as owners of the minerals rather
than the City as owner of the surface estate.
B. The Superior Court Did Not Abuse Its Discretion In Awarding
Attorney's Fees To CIRI As A Prevailing Party.
AlaskaCivil Rule82(b)(2) provides that incases resolved withouttrial"[i]n
which the prevailing party recovers no money judgment," the court may award the
prevailing party 20% of the party's reasonable attorney's fees actually incurred. The
superior court in this case concluded that CIRI was a prevailing party and entitled to
attorney's fees from the City because CIRI was granted summary judgment on its claim
to ownership of the disputed pore-space storage rights, which the City opposed.
The City contends this was error for two reasons. The City first argues that
Rule 82 does not apply to this case, but rather Civil Rule 72, which prohibits an award
of fees and costs against the condemnee in a condemnation action "[a]s a general rule."
Second, the City maintains that CIRI cannot recover attorney's fees even under Rule 82
because "the City did not assert any . . . claims against CIRI," which was nominally
aligned as its co-defendant in CINGSA's suit to determine the respective rights of all the
parties.
51 (...continued)
includes the right to the use of the reservoir underlying the two acres for storage
purposes," but not citing any source or rationale for this conclusion, as the only issue on
appeal is the amount of compensation).
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We conclude that Rule 82 governs CIRI's claim for attorney's fees. We
have recognized Rule 72 as "creat[ing] a narrow exception" to the general applicability
of Rule 82 for "those cases involving 'the condemnation of property under the power of
52 But the existence of a condemnation count does not mandate the
eminent domain.' "
application of Rule 72. In City of Anchorage v. Scavenius, for example, although we
affirmed the superior court's denial of Rule 82 attorney's fees to the City as a
condemning entity, we held that the City was properly awarded Rule 82 attorney's fees
for its successful defense against a common-law counterclaim.53 In R & Y, Inc. v.
Municipality of Anchorage, where landowners asserted an unsuccessful inverse
condemnation claim, we concluded that the Municipality was entitled to Rule 82
attorney's fees as the prevailing party.54 We have also affirmed awards of Rule 82
attorney's fees for a party's successful defense of issues "unrelated to the eminent
domain action."55
52 R & Y, Inc. v. Municipality of Anchorage , 34 P.3d 289, 301 (Alaska 2001)
(quoting Alaska R. Civ. P. 72(a)); see also City of Anchorage v. Scavenius , 539 P.2d
1169, 1173-74 (Alaska 1975) (holding that Civil Rule 72(k) trumps Rule 82 absent
"clear legislative intent").
53 539 P.2d at 1172-79; see also Stewart v. State, Dep't of Transp. & Pub.
Facilities, 693 P.2d 827, 831 (Alaska 1984) (summarizing our holding in Scavenius: a
"condemnor cannot get attorney's fees under Civil Rule 82 in the initial determination
of a condemnation action").
54 34 P.3d at 301.
55 Stewart, 693 P.2d at 831 (concluding that the condemnee's efforts to
acquire a temporary restraining order and preliminary injunction on the State's property
were issues "unrelated" to the State's action to condemn the condemnee's property); see
also Scavenius, 539 P.2d at 1178-79 (concluding that the condemning entity could be
awarded Rule 82 fees as prevailing party in actions not considered part of the eminent
domain action).
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In this case, Rule 72 does not supersede CIRI's right to Rule 82 attorney's
fees because CIRI's successful defense of the City's claimto ownership of the pore space
56 The condemning authority was
was "unrelated to the eminent domain action."
CINGSA, not CIRI. And other than with regard to minor interests not relevant here,
CINGSA's complaint sought to condemn the City's rights to pore-space storage only as
an alternative to a declaration that the City did not own those rights at all; the latter claim
prevailed.
Even with Rule 82 as the applicable standard, the City contends that CIRI
should have pursued attorney's fees "against the party that sued it - CINGSA." It
argues that CIRI cannot be the "prevailing party" because CIRI and the City were co-
defendants, the City asserted no cross-claims against CIRI, and the City should not be
"saddled" with an award of attorney's fees based on CINGSA's "unilateral decision" to
name CIRI as a defendant.
But we have rejected the argument that a party cannot be liable for
attorney's fees to a party it did not sue. Recently, in BP Pipelines (Alaska) Inc. v. State,
Department of Revenue, we reaffirmed the long-established rule that "regardless of how
parties are formally arranged, fees and costs may be awarded based on actual adversity
of interests."57 In BP Pipelines, owners of the Trans-Alaska Pipeline System and several
municipalities brought separate administrative appeals of the State Assessment Review
Board's valuation of the pipeline for property tax purposes.58 Three subsequent appeals
to the superior court, involving different combinations of the pipeline owners and
56 See, e.g. , Stewart, 693 P.2d at 831.
57 327 P.3d 185, 191-93 (Alaska 2014) (citing Moses v. McGarvey, 614 P.2d
1363, 1373 (Alaska 1980)).
58 Id. at 187-88.
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----------------------- Page 26-----------------------
59
municipalities, were consolidated for a single trial de novo. The central dispute
involved competing valuation methods: the owners argued for one approach and the
60 No affirmative
Department of Revenue, Board, and municipalities argued for another.
claims were asserted between the two sides. The superior court agreed with the
Department and the municipalities and ordered the owners to pay attorney's fees to them
as prevailing parties.61 We affirmed the attorney's fees award, rejecting the owners'
argument that they could not be liable for the municipalities' fees because the owners'
appealswere"directed against theDepartmentand the Board, not the [o]wners,"and thus
the municipalities could not have been "prevailing parties" as against the owners.62 We
reasoned that an "adversity of interests" existed between the owners and the
municipalitiesbecausethey wereclearly aligned against eachother"on every substantive
issue. . . . [They] were not just nominally opposing parties; they were the primary
litigants."63
Here, the City's argument that CIRI should seek attorney's fees from
CINGSA lacks merit because the "actual adversity" was between the City and the other
parties, not CIRI and CINGSA. After CIRI moved for summary judgment, both
CINGSA and the State joined CIRI's motion and aligned with CIRI on all issues,
including the primary one of whether the City owned the storage rights. Like the owners
59 Id. at 188.
60 Id.
61 Id.
62 Id. at 191-92.
63 Id. at 193.
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and the municipalities in BP Pipelines, CIRI and the City asserted no claims against each
other but still acted as the "primary litigants" in arguing opposite sides of the main issue.
We conclude that the superior court did not abuse its discretion in its
determination that CIRI was a prevailing party against the City or in its award of
attorney's fees to CIRI pursuant to Rule 82(b)(2).
V. CONCLUSION
We AFFIRM the judgment of the superior court.
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