2018 COA 134
Colo. Ct. App.2018Background
- The 70 Ranch (≈13,000 acres in Weld County) has a severed mineral estate: surface owned by Lembke/70 Ranch LLC; various parties (lessees: Bill Barrett, Bonanza Creek, Noble) hold oil & gas leases and produce wells on the surface.
- Sand Hills Metropolitan District previously included the 70 Ranch and assessed ad valorem taxes on produced oil & gas; Sand Hills later lost (on separate proceedings) for having materially modified its service plan without BOCC approval.
- After Sand Hills litigation, Lembke and 70 Ranch LLC petitioned inclusion of the 70 Ranch into South Beebe Metropolitan District; South Beebe assumed regional water projects and the Adams County court ordered inclusion without notifying all mineral owners or lessees.
- Lessees obtained a TRO preventing disbursement of collected taxes and sought a preliminary injunction to bar South Beebe from taxing oil & gas production; the trial court denied the preliminary injunction and entered partial summary judgment against lessees on the Section 32-1-401 claim.
- On appeal, the Colorado Court of Appeals: affirmed summary judgment that mineral lessees are not "fee owners" and that owners of severed mineral estates need not consent to inclusion because subsurface minerals are not "real property capable of being served with facilities of the special district;" but concluded lessees showed a reasonable probability of success that South Beebe materially modified its service plan in 2013 without Adams County BOCC approval and remanded for further Rathke findings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether owners or lessees of severed mineral estates are "fee owners" under §32-1-401(1)(a) whose consent is required for inclusion | Lessees: mineral owners and lessees are fee owners; their consent required | South Beebe: only surface owners must petition/consent; lessees are not fee owners | Mineral estate owners are "fee owners," but mineral lessees are not; however severed mineral estates are not "real property capable of being served" so their consent was not required — summary judgment affirmed |
| Whether a special district materially modified its service plan in 2013 requiring BOCC approval under §32-1-207(2)(a) | Lessees: South Beebe’s 2013 revised plan shifted it to a regional role (material change) and required BOCC approval which was not obtained | South Beebe: obtained sufficient county-level review (planning commission/agency staff) and thus satisfied approval requirement | Court: the 2013 revision was a material modification and South Beebe did not obtain required Adams County BOCC approval — lessees showed a reasonable probability of success; denial of preliminary injunction vacated and remanded for full Rathke analysis |
| Whether inclusion of the 70 Ranch in 2015 itself was a material modification requiring BOCC approval | Lessees: adding ~13,000 acres and taking over projects (reservoir) made inclusion material | South Beebe: boundary changes are exempt from approval; South Beebe already had a regional role and services were not new | Inclusion of the 70 Ranch was not a material modification (boundary change alone); no BOCC approval required for that inclusion under the facts here |
| Whether §32-1-107(2) prohibits South Beebe from taxing property that remains in Sand Hills because services overlap | Lessees: South Beebe cannot tax if Sand Hills provides same services within same territory | South Beebe: Sand Hills lost taxing authority and in any event overlapping services was not shown at the injunction hearing | Court declined to decide on overlap — issue not properly developed below; ruled §32-1-107(2) bars overlapping services (not merely overlapping territory) but remanded without ruling on factual overlap |
Key Cases Cited
- Corlett v. Cox, 333 P.2d 619 (Colo. 1958) (recognizes that a severed mineral estate can be held in fee simple)
- Clevenger v. Continental Oil Co., 369 P.2d 550 (Colo. 1962) (confirms that oil and gas rights may be severed and owned in fee)
- Rathke v. MacFarlane, 648 P.2d 648 (Colo. 1982) (sets Colorado six-factor standard for preliminary injunctions)
- Coquina Oil Corp. v. Harry Kourlis Ranch, 643 P.2d 519 (Colo. 1982) (distinguishes rights of lessees from fee owners in context of eminent domain/condemnation)
- UMB Bank, N.A. v. Landmark Towers Ass’n, 394 P.3d 887 (Colo. 2017) (distinguishes special assessments from ad valorem taxes and addresses due process concerns where property does not specially benefit)