CHAPTER 14 THE FIRST AND LAST DEFENSES IN PRIVATE ROYALTY LITIGATION: STATUTE OF LIMITATIONS AND CONSTITUTIONAL DEFENSES
| Jurisdiction | United States |
(Dec 2008)
THE FIRST AND LAST DEFENSES IN PRIVATE ROYALTY LITIGATION: STATUTE OF LIMITATIONS AND CONSTITUTIONAL DEFENSES
Hinkle, Hensley, Shanor & Martin, L.L.P.
Roswell, New Mexico
Meagan M. Norris
Hinkle, Hensley, Shanor & Martin, L.L.P.
Roswell, New Mexico
Andrew J. (Drew) Cloutier is a partner in the Roswell, New Mexico office of Hinkle, Hensley, Shanor, & Martin L.L.P. Drew has represented clients in oil and gas royalty and product valuation disputes for more than 20 years in federal courts; state courts in New Mexico, Texas, Oklahoma, and Wyoming; and, state administrative agencies.
Meagan M. Norris is an associate in the Roswell, New Mexico office of Hinkle, Hensley, Shanor & Martin, L.L.P. Ms. Norris received her Bachelor of Arts in Psychology from Southern Methodist University in 2002. In 2006, Ms. Norris received her Juris Doctorate from Pepperdine University School of Law in Malibu, California where she served as an Associate Editor of the Pepperdine Law Review. Prior to joining Hinkle, Hensley, Shanor & Martin, L.L.P., Ms. Norris was an Associate Vice President with Crescendo Interactive, Inc. in Camarillo, California where she provided charitable tax planning advice to non-profit organizations. Ms. Norris practices in the areas of general civil litigation, natural resources litigation, and estate and tax planning. She is a member of the Chaves County Bar and State Bar of New Mexico and is licensed to practice law in New Mexico and California.
This paper examines the affirmative defense most likely to be raised initially and vigorously in private royalty litigation (statute of limitations) and examples of affirmative defenses that, no matter how vigorously raised, are unlikely to be dispositive in private royalty litigation (constitutional defenses). The approach taken to examine these two types of defenses varies.
Constitutional defenses are not often the topic of many reported decisions in commercial or contractual cases, let alone royalty cases. Additionally, precedent and prudential concerns cause courts to be reluctant to reach constitutional defenses when there are other means of resolving a case.2 This relative dearth of authority on constitutional defenses renders any attempt to survey the law in mineral producing states in the Rocky Mountain region largely fruitless and any attempt to identify state constitutional defenses in all possible private royalty litigation a speculative exercise. Accordingly, this paper focuses on constitutional defenses that are relevant to a statutory law that affects private royalty litigation (Wyoming's Royalty Payment Act). Practitioners hopefully will find this discussion useful in considering such defenses in other jurisdictions.
Conversely, many complaints filed in private royalty cases are deliberately crafted to seek relief for indefinite periods or from the commencement of the payment practices that are the subject of the complaint. For reasons ranging from defining the extent of discovery to limiting exposure, statute of limitations defenses often are vigorously litigated and ruled upon. Additionally, appellate courts often address statutes of limitations in analogous circumstances in other civil cases. Accordingly, statute of limitations defenses are addressed in a survey style of seven western producing states.
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I. CONSTITUTIONAL DEFENSES
The framework under which the several states analyze constitutional claims that do not implicate life or liberty3 renders the possibility of a private royalty case being decided on constitutional grounds extremely slim.4 Courts uphold statutes unless satisfied beyond a reasonable doubt that the legislature exceeded the bounds of the federal or relevant state constitution in enacting the statute.5 All doubts concerning a statute are resolved in favor of its constitutionality.6 Above all, courts observe the maxim that "[s]tatutes should be construed, if possible, to avoid constitutional questions."7 The Wyoming Supreme Court has "said many times that constitutional questions will not be discussed if another appropriate ground exists to resolve the issue."8 Finally, a few states accord great deference to the constitutionality of statutes that deal with economic matters.9
Under this framework, the proponent of a constitutional defense faces the significant obstacle that most courts will not reach the constitutional issue if they can resolve the case on other grounds. Further, even if a court gives substantial consideration to a constitutional defense, the "beyond a reasonable doubt" standard is extremely difficult for the proponent to meet. Accordingly, a party raising the constitutional defense often chooses to persuade the court that their interpretation of the statute or particular law assists the court in avoiding a constitutional question whereas
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their opponent's position, if adopted, will force the court to address the constitutionality of the law.
A. STATE CONSTITUTIONAL INTERPRETATION GENERALLY
For many years, most state courts interpreted provisions in their constitutions that were identical or very similar to federal constitutional provisions in the same manner that federal courts interpreted the United States Constitution.10 Accordingly, if the federal courts had interpreted the Constitution to protect against deprivation of any original right, a state court would interpret the state constitution to do the same, whereas if the federal constitution did not provide any such protection, neither did the state constitution.11 In the past 40 years, state courts have moved to one of two forms of independent analysis of their own constitutions. First, certain states adopt a "primacy approach" under which the rights of a party are examined under state law and the court does not reach a federal question unless the state constitution does not afford the defendant the protection sought.12
The second approach to state constitutional interpretation is the "interstitial approach" under which a court first asks if a right is protected under the federal constitution.13 If the federal constitution protects the subject right, courts following this approach resolve the issue applying federal law. However, if the federal constitution does not protect the asserted right, then the state constitutional provisions are examined.14 State courts applying the interstitial approach generally will diverge from federal precedent for one of three reasons: they determine that the federal analysis is flawed, there are structural differences between the federal and state government, or there are distinctive state characteristics that mandate a result.15
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Determining whether a particular federal analysis is flawed or comparing the provisions of the federal constitution with those of the several states for differences exceeds the scope of this paper. However, there are examples of courts applying the distinctive state characteristics principles that may assist the proponent of a constitutional defense in royalty litigation. For instance, in Fourth Amendment jurisprudence, federal courts have developed a large body of law distinguishing between impermissible warrantless searches of a person's "curtilage" versus permissible warrantless searches of "open fields" surrounding a residence.16 Though it ruled that the state constitutional defense had not been preserved, a New Mexico court suggested that peculiarly western values might create different privacy expectations and therefore a larger area that is protected from warrantless search under the New Mexico Constitution:
The protection available under the fourth amendment for "open fields" depends on concepts that appear to have evolved in areas with very different customs and terrain. In New Mexico, lot sizes in rural areas are often large, and land is still plentiful. Our interpretation and application of the state constitution must take into account the possibility that such differences in custom and terrain gave rise to particular expectations of privacy when the state constitution was adopted.17
Under analogous rationales, a proponent of a defense in a private royalty case could argue that peculiar or unique circumstances recognized by a producing state's constitution have special meaning to contracts. Some examples include the populist nature of the state constitution and embodied limits on government to interfere in private affairs18 and/or the recognized importance of mineral development to the fiscal health of the state.19 The peculiar nature of the oil, gas, and mining industries may make it
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especially inappropriate for legislation to alter the balance of consideration agreed upon before there was any production from a particular property or at some much earlier time.20
B. POTENTIAL CONSTITUTIONAL DEFENSES TO ACTIONS BROUGHT UNDER THE WYOMING ROYALTY PAYMENT ACT.
The current version of Wyoming's Royalty Payment Act ("Act")21 was adopted in two parts. In 1982, Wyoming adopted Sections 301, 302, and subsections (a) and (b) of Section 303. Section 301 requires that operators and other payors of oil and gas proceeds make payments within certain time frames.22 Section 302 requires payors holding suspended runs to comply with various escrow requirements using interest bearing accounts for the benefit of interest owners whose proceeds are suspended.23 The two subsections adopted in the 1982 version of Section 303 create remedies for failure to comply with the two prior sections and establish venue for actions brought under the Act.
In 1989, the Wyoming Legislature added Sections 303(c), 304 and 305 to the Act. Section 305(b) imposes certain reporting or check stub requirements on payors of oil and gas proceeds.24 Section 303(c) provides additional remedies for violating those requirements.25
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The...
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