Northern Natural Gas Company v. Tract No. 1062710 et al
Filing
574
MEMORANDUM AND ORDER. Northern's Objection to Appointment (Doc. 513) is SUSTAINED. The Court will identify an additional alternate commissioner as time permits. SEE ORDER FOR DETAILS. Signed by District Judge Monti L. Belot on 10/24/2012. (alm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
Northern Natural Gas Company,
Plaintiff,
v.
Approximately 9117.53 acres in
Pratt, Kingman, and Reno
Counties, Kansas, and as further
described herein,
Tract No. 1062710 containing
80.00 acres more or less,
located in Kingman County,
Kansas, and as further described
herein; et al.,
Defendants.
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CIVIL ACTION
No. 10-1232-MLB-DWB
MEMORANDUM AND ORDER
This matter is before the court on the following:
1. Northern’s Objection to Appointment of Proposed Alternate
Commissioner Kenton L. Hupp (Doc. 513);
2. Val Energy defendants’ opposition to the objection (Doc.
516); and
3. L.D. Drilling opposition to the objection (Doc. 517).
I. Summary
The court previously identified prospective commissioners to
determine just compensation pursuant to Fed.R.Civ.P. 71.1(h)(2).
(Doc. 497). It also granted a request by Northern for examination
of prospective alternate commissioner Kenton L. Hupp. Northern now
1
objects to the appointment of Mr. Hupp, arguing his appointment
would present several conflicts of interest.
II. Standard of Review
Rule 71.1(h)(2)(C) provides that the parties may not propose,
but may “for good cause” object to prospective commissioners. The
rule does not state what constitutes good cause, but the purpose of
the rule “is to insure that unbiased and competent commissioners
are appointed.” Fed.R.Civ.P. 71.1 advisory committee note, 1985
amendment.
Toward
that
end
the
rule
gives
litigants
rights
to
participate in the appointment of commissioners – including a right
to object for cause -- “that are roughly comparable to the practice
with regard to jury selection.” Id. Cf. United States v. Wallace,
201
F.2d
65,
67
(10th
Cir.
1953)
(finding
it
inappropriate
to
appoint commissioners who had previously expressed an opinion as to
the
land’s
opinion
value;
about
the
“[a]
juror
issues
in
who
a
has
case
formed
is
and
ordinarily
expressed
an
regarded
as
disqualified”).
No challenge has been raised here to the competence of Mr.
Hupp
to
serve
as
a
commissioner.
His
unquestioned
professional
qualifications as a petroleum engineer make him well suited for the
position. The court’s inquiry also satisfies it that his experience
and reputation in the field make him suitable for the appointment.
The
sole
claim
is
that
his
appointment
would
give
rise
to
an
impermissible conflict of interest or the appearance of a conflict.
2
One commentator has noted that the circumstances amounting to
a disqualifying conflict of interest are not well-defined. 1 Steven
S. Gensler, Federal Rules of Civil Procedure: Rules and Commentary
Rule
71.1,
n.68
(2012
ed.).
Courts
were
previously
divided
on
whether the conflict-of-interest standard for judges in 28 U.S.C.
§455 applied to special masters and to land commissioners. See
Guardian Pipeline, L.L.C., v. 950.80 Acres of Land, 525 F.3d 554,
556 (7th Cir. 2008)(listing cases). In response, the Supreme Court
amended Rule 53(b) in 2003 to expressly subject special masters to
the standards of §455. Guardian Pipeline, 525 F.3d at 556. But the
Court left the powers and duties of commissioners intact in Rule
71.1 even though commissioners’ powers are defined by reference to
certain
other
subsections
of
Rule
53.
This
differing
treatment
suggests §455 applies to special masters but not to commissioners.
Moreover, Rule 71.1 “treats commissioners more like jurors than
like judicial officers.” For these reasons, since 2003 “no court
has
held
that
§455
supplies
the
standards
for
members
of
commissions in condemnation proceedings.” Guardian Pipeline, 525
F.3d at 556.
Yet
even
those
cases
suggesting
§455
does
not
apply
have
looked to the statute in determining whether disqualification of a
commissioner is warranted. See Guardian Pipeline, 525 F.3d at 556
(“Let us assume, however, that §455 applies.”); Rockies Express
Pipeline, LLC v. 4.895 Acres of Land, 2010 WL 3001665, *4 (S.D.
3
Ohio,
July
30,
2010)
(“[i]t
does
not
matter
whether
§455
technically applies, because the type of concerns animating that
statute should apply to commissioners and can be applied by this
Court
under
its
inherent
authority
to
select
and
appoint
commissioners,…”)[emphasis in original].
In Rockies Express Pipeline, supra, an objection was made that
a commissioner had a conflict of interest because the law firm in
which he was a partner had been defended in a malpractice action by
counsel for the condemnor. The alleged conflict did not come to
light
until
after
the
commission
issued
a
report
and
recommendation. The district court sustained the objection even
though it found no evidence of actual bias on the part of the
commissioner.
It
did
so
under
an
“appearance
of
impropriety”
standard:
If the average man or woman on the street would pause at
the representation involved here, then the risk of even an
ultimately
groundless-given-who-is-involved
perception
of
possible
partiality
is
enough
to
warrant
select
disqualification in the absence of party waiver. There may be
no hint of actual partiality, but even a chance of perceived
impropriety is enough to call for overcompensation in the name
of obviating any questions as to the fairness of the
proceedings. Even if Rule 71.1, Rule 53, § 455, and any
potentially if perhaps only tangentially relevant advisory
opinions do not expressly or even necessarily call for
accepting Defendants' impression of the proceedings as
tainted, this Court's concern for unquestionable actual and
apparent propriety compel today's disposition. The Court would
remove a prospective juror from the jury pool if he or she, or
a family member, were represented by counsel. This Court would
also act to address such a situation if, during jury
deliberations, it came to light that a juror has such a
professional connection with trial counsel. The same concern
4
for avoiding situations in which impartiality might reasonably
be questioned animates this Court's actions today.
Rockies Express Pipeline, 2010 WL 3001665, *5.
III. Facts
The facts surrounding Mr. Hupp’s relationship with the
litigants are essentially undisputed. In 1999 or thereabouts, an
attorney engaged Mr. Hupp on behalf of Nash Oil & Gas, a defendant
herein, to evaluate Northern’s claim that two Nash wells on the
Young and Holland leases were producing Northern storage gas from
the Cunningham Storage Field. Mr. Hupp reviewed documents relating
to that issue and requested a number of additional documents from
Northern. The purpose of that inquiry was to determine if the
information Northern had backed up its claim that Nash was
producing storage gas. He recalls a meeting in Pratt where there
was some discussion of gas analysis provided by Northern.
Mr. Hupp also spoke during that time frame with the principal
and operator for Trans Pacific Oil Corporation, which was similarly
involved in a dispute with Northern about possible production of
storage gas. Both Nash and Trans Pac were adverse to Northern in
the prior matter. Mr. Hupp met with Kent Deutsch of Trans Pac and
reviewed the area.
Mr. Hupp does not recall but may have participated as a Nash
representative in a meeting between Nash and Northern and their
attorneys. Due to the passage of time, Mr. Hupp cannot recall the
5
specifics of his engagement and cannot recall if he formed any
opinion as to whether the Nash wells were producing storage gas. He
does not believe he reached the point of making that determination.
His records relating to the matter were likely disposed of when he
subsequently moved his office.
A letter from Nash’s attorney to Northern’s attorney in May of
2000 shows that Jerry Nash declined Northern’s request to sign an
agreement tolling the statute of limitations. (Doc. 500-3). The
letter asserted that if Northern could produce some evidence that
the two Nash wells were producing storage gas, Nash would
reconsider his position, but “[t]o date, no such information has
been furnished to Mr. Nash or to his consulting engineer, Kenton
Hupp.” The letter also asserted that negotiations over Northern’s
possible purchase of the wells broke down “when Northern
unrealistically decided that the only offer would be based on Mr.
Nash’s tangible costs in the wells or a salvage value. Mr. Nash
would consider transferring these wells to Northern for their
reasonable fair market value. That is, the reasonable fair market
value without the cloud of Northern’s claim.” Mr. Hupp was copied
on the letter.
The dispute over the two Nash wells resulted in litigation in
2004. Mr. Hupp was not retained as an expert in connection with
that litigation.
6
In late 2010 or early 2011, Mr. Hupp was engaged by Kenny
Gates, a principal in Pratt Well Service and Iuka-Carmi, to
estimate oil and gas reserves for the Schwertfeger 1-23 well. Mr.
Hupp knows Gates well and has known him for over 20 years. He has
done work for Gates in the past. Pratt Well Service and Iuka-Carmi
are defendants in this condemnation proceeding and the Schwertfeger
1-23 well is involved in the condemnation. Gates wanted this
calculation because Northern indicated it was interested in
purchasing the well. Hupp estimated gas reserves for the well using
historical sales figures and assuming a 10% decline rate. He did
not take into consideration whether its production was tied into
the storage field. The bill for his work amounted to $300.
Mr. Hupp was previously designated as an expert witness in
this condemnation proceeding by an attorney for Pratt Well Service,
Iuka-Carmi and Noble Gas. (Doc. 395). The evidence is clear,
however, that the attorney did so without consulting with Mr. Hupp
and Hupp was not even aware he had been so designated. The attorney
did so after talking to Ken Gates, the principal of Pratt
Well/Iuka-Carmi, who told the attorney he would like to have Hupp
as his expert.
Mr. Hupp has “done quite a bit of work” for VAL Energy in the
past and continues to do so. He prepares ad valorem tax renditions
for them on an annual basis for their producing leases. The tax
valuation is based on a well’s production history and a projection
7
of reserves. Mr. Hupp has known Todd Allam of VAL Energy for about
25 years and considers him a friend. Hupp has done work for VAL
Energy since 1986.
IV. Discussion
Northern contends Mr. Hupp should be disqualified for three
reasons: (1) he was previously adverse to Northern in a related
matter; (2) he is financially tied to some of the parties in this
litigation; and (3) he has been designated as an expert by a party
to the case and has performed work that renders him a potential
witness.
Starting with the last point first, the fact that Mr. Hupp was
previously designated as an expert in this proceeding does not
disqualify him. The uncontroverted evidence shows that he was
designated without his knowledge or consent. The designation in no
way shows or suggests that he would not or could not be a fair and
impartial commissioner. Cf. Sao Paulo State of Fed. Repub. Of
Brazil v. American Tobacco Co., Inc., 535 U.S. 229 (2002) (no
recusal required where judge’s name erroneously listed as sponsor
of amicus brief). Additionally, Northern’s proclamation that it “is
entitled to review all data upon which Hupp relied in forming his
opinions and is entitled to seek Hupp’s deposition as this matter
proceeds” (Doc. 513 at 9) is nothing less than an argument conjured
up to seek disqualification rather than a legitimate expression of
8
concern about Mr. Hupp’s ability to be fair and impartial. All
together, the court is amazed that Northern would rely on such a
patently unfounded basis to object to a highly qualified
prospective commissioner.
Aside from that question, the evidence shows Mr. Hupp’s prior
work estimating oil and gas reserves for the Schwertfeger 1-23 well
bears on the subject matter of the condemnation proceeding. The
amount of the reserves would affect the value of the interests
being condemned and would impact the determination of just
compensation. And although the work involved only a single well,
the same analysis could arguably apply to other wells in the
proceeding. In a sense Mr. Hupp as a commissioner could be in the
position of reviewing his own work or opinion as to the value of
the wells’ reserves.
This fact is clearly mitigated by the nature
of the work he actually performed. It appears to have been more of
a perfunctory mathematical calculation than a subjective analysis
of the underlying strata, and Mr. Hupp was not asked to make any
assumptions or assessments about the presence or absence of storage
gas.
The evidence also shows Mr. Hupp has an ongoing business
relationship with VAL Energy and Iuka-Carmi, both defendants in the
case, which Mr. Hupp expects will continue. It consists primarily
of performing ad valorem tax valuations. Some of the valuations may
9
relate to wells involved in the condemnation. The evidence is scant
as to the extent of any financial interest involved. Indeed,
Northern’s examination produced no suggestion that this business
relationship would in any way impair Mr. Hupp’s ability to
impartially find the facts or exercise his professional judgment in
this proceeding.
Finally, Mr. Hupp previously performed work for Nash that
bears a direct relation to an issue involved in the condemnation –
namely, whether wells owned or operated by the defendants have
produced storage gas from the Northern storage field. Mr. Hupp’s
work occurred over ten years ago and it is not surprising that he
remembers few details from the engagement. It is not at all clear
whether he formed any opinion about the matter at the time.
Northern is arguably in the best position to know that fact since
the evidence indicates Mr. Hupp’s file was turned over to
Northern’s counsel in 1999. (Doc. 500-2). Moreover, the evidence
shows Mr. Hupp has no present opinion about the matter and could
impartially decide the question based on evidence presented in this
proceeding.
Taken as a whole, the evidence shows no actual bias or
prejudice on Mr. Hupp’s part that would disqualify him from serving
as a commissioner. Cases such as Rockies Express Pipeline suggest
that an appearance of a conflict, even when no actual conflict
10
exists, is enough to disqualify a prospective commissioner. Rockies
Express Pipeline, 2010 WL 3001665 at *5 (“There may be no hint of
actual partiality, but even a chance of perceived impropriety is
enough to call for overcompensation in the name of obviating any
questions as to the fairness of the proceedings.”). The rationale
for this view is that public confidence is furthered by avoiding
even the appearance of a conflict. Whether public confidence here
would be furthered by excusing a highly qualified commissioner on
the grounds set forth is debatable. The court is reminded that
Northern sought a commission in the first place by arguing that
confidence in the proceeding would be boosted by having persons
with special expertise decide what the interests it sought to
condemn were worth.
Under the standard of Rockies Express Pipeline the court
reluctantly concludes that Mr. Hupp should be excused. The work
that Mr. Hupp previously performed for Nash -- examining Northern’s
claim that a Cunningham area well was producing storage gas –- is
closely related to a central issue in this proceeding. That issue
could materially affect the amount of just compensation to be paid.
Additionally, his subsequent work estimating reserves for the
Schwertfeger 1-23 well is directly tied to an issue in the
condemnation.
11
The court reaches this conclusion with great reluctance
because, frankly, the evidence suggests Mr. Hupp has the expertise,
sound judgment and character to be an excellent commissioner. His
unique knowledge of the issues involved is not easily replaced. But
to avoid even the appearance of a conflict, the court will sustain
the objection to the appointment.
The court will now select and propose another alternate
commissioner. The parties, and especially Northern, are reminded
that in a state such as Kansas with a relatively small population,
it is not uncommon or unexpected that a person with unique
expertise in the oil and gas industry would have some business
relationship with parties to a lawsuit involving that area of
expertise. “Commissioners are supposed to bring expertise to the
task, and they could not do so if the very knowledge and experience
that made their views desirable also disqualified them.” Guardian
Pipeline, 525 F.3d at 556.
V. Conclusion
Northern’s Objection to Appointment (Doc. 513) is SUSTAINED.
The court will identify an additional alternate commissioner as
time permits. The court thanks Mr. Hupp for his willingness to
serve and excuses him from further participation in the matter.
IT IS SO ORDERED.
12
Dated this 24th
day of October, 2012 at Wichita, Kansas.
s/Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE
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