Pantera Energy Company v. Railroad Commission of Texas ConocoPhillips Company And Pioneer Natural Resources, USA

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-02-00474-CV

NO. 03-03-00045-CV

NO. 03-03-00046-CV

Pantera Energy Company, Appellant

v.

Railroad Commission of Texas; ConocoPhillips Company; and Pioneer

Natural Resources, USA, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250 TH JUDICIAL DISTRICT

NOS. GN103473, GN200177 & GN200727, HONORABLE W. JEANNE MEURER,

JUDGE PRESIDING

O P I N I O N

Pantera Energy Company challenged orders of the Railroad Commission dismissing

several of its applications to unpool oil and gas units under Commission rule 3.38(d)(3) by filing in

district court two suits for judicial review. See 16 Tex. Admin. Code § 3.38 (d)(3) (2003). It also

filed a declaratory judgment action seeking a declaration that the Commission had violated its own

rule and had acted arbitrarily and capriciously by requiring Pantera to provide notice of its

applications to owners and operators of adjacent offset tracts when the rule did not explicitly require

such notice. See 14 Tex. Reg. 1575 (1989), adopted 14 Tex. Reg. 5255 (former 16 Tex. Admin.

Code § 3.38 (d)(3) (Tex. R.R. Comm'n) (hereinafter cited as Former Rule 3.38(d)(3)). The district

court dismissed the causes as moot because while they were pending, the Commission amended the

applicable rule to require notice to offset operators. See 16 Tex. Admin. Code § 3.38 (d)(3) (2003).

We have consolidated the three causes on appeal for purposes of our review. We

reverse the district court's judgments in the two suits for judicial review and remand those causes

to the district court for proceedings on the merits; we affirm the district court's dismissal of Pantera's

declaratory judgment action.

BACKGROUND

Pantera initially filed eight applications with the Commission to dissolve certain of

its voluntarily pooled oil and gas units in the West Panhandle Field under the Commission's rule

3.38(d)(3). See Former Rule 3.38(d)(3). After the Commission failed to grant these applications,

Pantera pursued an unsuccessful interim appeal with the Commission and then scheduled a hearing

on two of the eight applications. These two applications were eventually dismissed without

prejudice because Pantera had failed to provide notice to offset operators. Pantera filed a motion for

rehearing asking the Commission to reverse the orders of dismissal, but its motion was denied.

Pantera then filed a suit for judicial review challenging the dismissal orders.

About a month prior to the dismissal orders on the first set of applications, Pantera

filed an additional forty applications to unpool certain other units in the same field. The

Commission consolidated these new applications with Pantera's six pending applications. The

examiner assigned to these forty-six applications, Colin Lineberry, issued a proposal for decision

recommending that the Commission deny the applications because they were an attempt to

circumvent density restrictions and were really applications seeking exceptions to the density

provisions, falling under subsection 3.38(h) of the same rule, rather than applications seeking merely

to divide previously pooled units. (1) See 16 Tex. Admin. Code § 3.38 (h) (2003). That subsection

requires an applicant to provide to the Commission the names and addresses of all "affected

persons," which include operators and mineral interest owners of all adjacent offset tracts:

If a permit to drill requires an exception to the applicable density provision, the

operator must file . . . a list of the names and addresses of all affected persons. For

the purpose of giving notice of application, the commission presumes that affected

persons include the operators and unleased mineral interest owners of all adjacent

offset tracts.

Id.

Because Pantera had been informed by the Commission that it must provide notice

to offset operators, and because Pantera had not complied with this request, the Commission adopted

Mr. Lineberry's proposal for decision and dismissed Pantera's applications without prejudice. With

respect to these applications, Pantera filed a second suit for judicial review in the district court.

Additionally, Pantera filed a suit for declaratory judgment after the Commission

indicated that the applications would not be granted until Pantera had provided notice to offset

operators. In that suit, Pantera asked the court to declare that the Commission was applying its rule

in an improper and unjust manner and that Pantera's applications must be granted administratively,

as provided in the rule, and without notice to offset operators.

In the declaratory judgment action, Pantera filed a motion for summary judgment.

The Commission, as well as intervenors Phillips Petroleum Co., Conoco Inc., (2) and Pioneer Natural

Resources U.S.A., Inc., responded by filing motions to dismiss and pleas to the jurisdiction, claiming

that a recent amendment to rule 3.38(d)(3) rendered the cause moot, as the amended rule now

required notice to offset operators, and that the suit for declaratory relief was duplicative of Pantera's

two pending administrative appeals. See 16 Tex. Admin. Code § 3.38 (d)(3)(B) (2003) ("If one or

more wells on the unitized tract has produced from the field within the 12-month period prior to the

application, the applicant shall include on the list all affected persons described in subsection

(h)(1)(A) of this section, and the Commission shall give notice . . . to these affected persons."). The

district court granted the pleas to the jurisdiction, dismissing Pantera's declaratory judgment cause

as moot and declining to exercise jurisdiction over it.

The Commission and the intervenors similarly filed pleas to the jurisdiction in the

administrative appeals on the identical mootness argument, and Pantera filed motions for summary

judgment. The district court granted the Commission's and intervenors' pleas and dismissed the

administrative appeals. Pantera asks this Court to reverse all three district-court judgments and

remand the causes for proceedings on the merits.

DISCUSSION

Pantera argues that the district court erred by declaring its dispute with the

Commission moot because (1) the Commission's amended rule should not be applied retroactively

to its applications and (2) the district court had jurisdiction to determine whether the Commission

violated its own rule by arbitrarily and capriciously requiring notice to offset operators.

Standard of review

We review a district court's ruling on a plea to the jurisdiction under a de novo

standard of review because subject matter jurisdiction is a question of law. Mayhew v. Town of

Sunnyvale , 964 S.W.2d 922, 928 (Tex. 1998); Cornyn v. County of Hill , 10 S.W.3d 424, 427 (Tex.

App.--Waco 2000, no pet.). The plaintiff has the burden to plead facts affirmatively showing that

the district court has jurisdiction. Texas Ass'n of Bus. v. Texas Air Control Bd. , 852 S.W.2d 440,

446 (Tex. 1993). A plea to the jurisdiction should, however, be decided without delving into the

merits of the case. See County of Cameron v. Brown , 80 S.W.3d 549, 555 (Tex. 2002). A plea to

the jurisdiction does not authorize an inquiry so far into the substance of the claims presented that

the plaintiff is required to put on its case simply to establish jurisdiction. Bland Indep. Sch. Dist. v.

Blue , 34 S.W.3d 547, 554 (Tex. 2000). For purposes of the plea to the jurisdiction, we construe the

pleadings in the plaintiff's favor and look to the plaintiff's intent. Brown , 80 S.W.3d at 555 .

Amendments to rule 3.38(d)(3)

Pantera argues that the amendments to rule 3.38(d)(3) are substantive changes and

that the rule therefore cannot be applied retroactively ( i.e. , to any future proceedings on its filed

applications). See Ex parte Abell , 613 S.W.2d 255, 260-261 (Tex. 1981). Pantera claims that the

rule as it existed on the dates its applications were filed governs the notice Pantera was required to

give, and therefore the district court erred in not considering the merits in all three causes. The

Commission, on the other hand, urges that the amendments affect only the procedural requirements

of an application under the rule and thus will govern any future steps with respect to the applications,

including the remand of the cases to the Commission. See Texas Dep't of Health v. Long , 659

S.W.2d 158, 160 (Tex. App.--Austin 1983, no writ). We agree with Pantera that the changes to the

rule were substantive.

It is presumed that statutes operate prospectively unless expressly made retrospective.

Tex. Gov't Code Ann. § 311.022 (West 1998); Abell , 613 S.W.2d at 258 . All doubts as to

retroactivity are "resolved against retrospective operation." Abell , 613 S.W.2d at 258 . An act will

not be applied retrospectively unless it appears by fair implication from the language used that it was

the intent of the legislature to make it applicable to both past and future transactions. Id. ; Davis v.

State , 846 S.W.2d 564, 569 (Tex. App.--Austin 1993, no writ). These principles derive from the

Texas Constitution, which broadly prohibits retroactive laws. See Tex. Const. art. I, § 16; Abell , 613

S.W.2d at 259 . With respect to procedural statutes, however, it is settled law that the legislature may

make changes applicable to future steps in pending cases. See Long , 659 S.W.2d at 160 (holding

change in requirements of landfill application procedural); Abell , 613 S.W.2d at 262 (holding new

law creating doctor-patient privilege as relating to admissibility of evidence and thus procedural in

nature). The same legal principles apply to administrative rules. See Grocers Supply Co. v. Sharp ,

978 S.W.2d 638, 643 (Tex. App.--Austin 1998, pet. denied) (citing Long , 659 S.W.2d at 160 ).

When Pantera filed its applications, subsection 3.38(d) required the following: (1)

notice to all current lessees and unleased mineral interest owners of each tract within the joined or

unitized tract, (2) an opportunity for a hearing, and (3) administrative grant of the application in the

case of written waivers of notice or in the absence of a timely written protest. See Former Rule

3.38(d)(3) . Former subsection 3.38(d)(3) read:

(3) Division after joinder or unitization. If two or more separate tracts are joined or

unitized for oil, gas, or geothermal development and accepted by the

commission, the joined or unitized tracts may not . . . be divided into the

separate tracts . . . unless and until the commission approves such division after

application, notice to all current lessees and unleased mineral interest

owners of each tract within the joined or unitized tract , and an opportunity

for hearing. If written waivers are filed or if a protest is not filed within the

time set forth in the notice of application, the application will be granted

administratively.

Id. (emphasis added). The amended subsection 3.38(d)(3) reads:

(3) Unit dissolution.

(A) If two or more separate tracts are joined to form a unit for oil and gas

development, the unit is accepted by the Commission, and the unit has

produced hydrocarbons in the preceding twenty (20) years , the unit

may not thereafter be dissolved into the separate tracts . . . unless the

Commission approves . . . .

(B) The Commission shall grant approval only after application, notice, and an

opportunity for hearing. [. . .] [I]f one or more wells on the unitized tract

has produced from the field within the 12-month period prior to the

application, the applicant shall include on the list all affected persons

described in subsection (h)(1)(A) [including offset operators] of this

section . . . .

(C) A Commission designee may grant administrative approval if the

Commission designee determines that granting the application will not

result in the circumvention of the density restrictions of this section or

other Commission rules, and if either . . . written waivers are filed . . . [or]

no protest is filed . . . .

16 Tex. Admin. Code § 3.38 (d)(3) (2003) (emphasis added). The amendment added the requirement

of notice to offset operators, which on its own is a procedural change. However, the subsection was

further amended to add a criterion for the grant of an application: determination that its grant will

not result in circumvention of the density restrictions. Also, the amended rule added the condition

that the unit have produced hydrocarbons in the preceding twenty years before it can be dissolved.

These amounted to substantive changes in the standard by which the Commission reviews and grants

applications and, taken together, are more than mere procedural changes; they are changes in the

substantive law governing the right to unpool.

The amended rule does not indicate the Commission intended that it be applied

retroactively. Although the preamble to the new rule states that the amendments "do not change

current Commission practice or requirements" and only "clarify current Commission policy

concerning notice requirements and administrative approval of applications for unit dissolution," the

new requirement of notice to offset operators is clearly a change in Commission policy. See 26 Tex.

Reg. 9480 (2001) ( 16 Tex. Admin. Code § 3.38 (d)(3)) (proposed Nov. 23, 2001). The Commission

did not require notice to offset operators under the old rule 3.38(d)(3); its demand of such notice

from Pantera stemmed from the Commission's characterization of the applications as implicating

subsection 3.38(h)'s density restrictions. As we believe that the amendments changed at least the

Commission's notice policy, its statement in the preamble that the amendments do not change

current policy is trumped by the plain language of the amendment. Thus, we believe that the

presumption of prospective application applies to the amendments to subsection 3.38(d)(3).

Furthermore, the relationship between the Commission's actions on Pantera's

applications and the rule amendment appears more than coincidental--it appears intentional and

unfair. An agency cannot change the rules of the game in the middle of a dispute by first demanding

extra requirements of an applicant, dismissing its applications for failure to comply, and then

amending the rule to include those requirements. See Flores v. Employees Ret. Sys. , 74 S.W.3d 532,

545 (Tex. App.--Austin 2002, pet. denied) (holding agency's implementation of new policy months

after applicant's hearing seeking disability benefits under earlier policy and agency precedent was

arbitrary and capricious as to that applicant).

We refuse to divide the rule into aspects that are procedural--the notice to offset

operators provision--and those that are substantive--the consideration of density circumvention and

the condition of production within twenty years. The Commission cannot pick and choose which

aspects of the rule it will apply retroactively and which aspects prospectively. The nature of the

entire rule is substantive as it affects the right to dissolve previously pooled units. Thus, we will not

find that the notice aspect applies retroactively while the other criteria apply only prospectively. As

a result, we hold the entire new subsection 3.38(d)(3) constitutes a substantive change that does not

apply to Pantera's pending applications if they should be remanded. Therefore, the old rule, as it

appeared on the books when Pantera filed its applications, must govern if there is a remand to the

Commission. (3)

Mootness

Mootness is an issue that implicates subject matter jurisdiction. See Speer v.

Presbyterian Children's Home & Serv. Agency , 847 S.W.2d 227, 229 (Tex. 1993). The mootness

doctrine limits courts to deciding cases in which an actual controversy exists. Camarena v. Texas

Employment Comm'n , 754 S.W.2d 149, 151 (Tex. 1988). A controversy must exist between the

parties at every stage of the legal proceedings, including the appeal. Williams v. Lara , 52 S.W.3d

171, 184 (Tex. 2001). If a controversy ceases to exist--"the issues presented are no longer 'live' or

the parties lack a legally cognizable interest in the outcome"--the case becomes moot. Id. (quoting

Murphy v. Hunt , 455 U.S. 478, 481 (1982)). If a case becomes moot, the parties lose their standing

to maintain their claims. Id.

Here, the controversy between the parties was whether the Commission had violated

its own rule by (1) requiring Pantera to provide notice to offset operators and (2) arbitrarily and

capriciously refusing to grant administrative approval of Pantera's rule 3.38(d)(3) applications. Rule

3.38(d)(3) had been amended by the time the district court entered its judgment, and thus the court

determined that the amendment rendered Pantera's arguments moot. Its reasoning, most likely, was

that the amended rule amounted to a procedural change, that such amendment would apply to any

future steps with respect to Pantera's filed applications, and that therefore there was no longer a

controversy between Pantera and the Commission over whether Pantera needed to give notice to

offset operators. (4)

Because we hold that the rule changes were substantive and do not apply to future

steps in this litigation, the district court erred in determining the issue moot and by refusing to

exercise jurisdiction over the matter. The proper course of action would have been for the district

court to hear the causes on their merits, reversing and remanding if it determined that the

Commission acted wrongfully, or affirming if it determined that the Commission did not exceed its

authority. See Tex. Gov't Code Ann. § 2001.174 (West 2000).

Pantera's declaratory judgment action

Both Pantera's declaratory judgment action and its two suits for judicial review

challenge the same actions by the Commission--dismissal of its applications due to improper

application of rule 3.38(d)(3)--and seek the same relief: a determination that the old rule applies,

that Pantera was not required to give notice to offset operators, and that the Commission acted

arbitrarily and capriciously in not granting the applications. Thus, its declaratory judgment action

is duplicative of its other two suits and was properly dismissed by the district court. See Young

Chevrolet, Inc. v. Texas Motor Vehicle Bd. , 974 S.W.2d 906, 911 (Tex. App.--Austin 1998, pet.

denied) (trial court properly dismissed declaratory judgment action that requested same relief as

administrative appeal).

CONCLUSION

The amendments to rule 3.38(d)(3) amounted to substantive changes and did not,

therefore, render Pantera's two suits for judicial review moot. Pantera's declaratory judgment action,

however, was duplicative of the issues presented in those suits and was properly dismissed. We

therefore reverse the judgments of the district court with respect to the two suits for judicial review

and remand these causes to the district court for further proceedings consistent with this opinion; we

affirm the district court's dismissal of the declaratory judgment action.

Bea Ann Smith, Justice

Before Chief Justice Law, Justices B. A. Smith and Patterson: Opinion by Justice B. A. Smith;

Concurring and Dissenting Opinion by Justice Patterson

Affirmed in Part; Reversed and Remanded in Part

Filed: October 30, 2003

1. There is some evidence in the record to support the examiner's suspicions. Pantera applied

for a density exception in 1997 to drill a well on one of the same units at issue here but withdrew the

application when Phillips Petroleum Co. protested. Pantera then refiled for a permit to drill at

exactly the same well location with a restriction that it not be able to produce that well concurrently

with its existing well. When the new well was completed, Pantera shut-in the existing well. The

Commission's concern, as illustrated by Mr. Lineberry's proposal for decision, was that by applying

to unpool the same unit, Pantera would effectively be giving itself the very exception that it sought

but withdrew in 1997, without an opportunity for protest or a hearing by Phillips or other offset

operators.

2. ConocoPhillips Co. is the present successor-in-interest to the two intervenors Conoco and

Phillips.

3. Because this Court is not permitted to consider the merits of Pantera's claims, but only the

narrow issue of whether the district court erred in declining jurisdiction, we do not address the

question of whether it was proper for the Commission to have considered density circumvention with

respect to subsection 3.38(d)(3) applications under the old rule, which must govern Pantera's

applications if remanded. For the same reason, neither do we address whether it was proper for the

Commission to characterize Pantera's applications as seeking density exceptions, under subsection

3.38(h), rather than as applications to unpool under subsection 3.38(d)(3).

4. We note ConocoPhillips's point at oral argument that even if the issue before the district

court was not formally rendered moot by the rule amendments, it was in practical effect rendered

moot because by now the offset operators, including ConocoPhillips, have actual notice of Pantera's

applications. We reject this argument because from the record it is not clear whether there are any

"affected persons" besides the intervenors to whom notice would have been required under the new

rule and because the controversy between Pantera and the Commission over whether the

Commission violated its own rule still exists.