Northern Natural Gas Company v. Tract No. 1062710 et al

Filing 790

MEMORANDUM AND ORDER denying 734 Motion in Limine; denying 736 Motion in Limine; denying 738 Motion for Leave to File. Signed by District Judge Monti L. Belot on 12/27/2013. (smg)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

NORTHERN NATURAL GAS COMPANY,

)
)
Plaintiff,
)
)
v.
)
)
APPROXIMATELY 9117 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.,,
)
)
Defendant.
)
)

CIVIL ACTION
No.

10-1232

MEMORANDUM AND ORDER
Before the court are the following:
Northern’s Motion in Limine to Exclude 2010 Simulation
and Memorandum in Support (Docs. 734, 735); Defendants’
Responses (Docs. 741, 742, 746, 748); and Northern’s
Reply (Doc. 754));
Northern’s Motion in Limine on Use of Trans Pac
Litigation Materials and Memorandum in Support (Docs.
736, 737); Defendants’ Responses (Docs. 749, 751, 752,
753); and Northern’s Reply (Doc. 757); and
Defendant L.D. Drilling’s Motion in Limine and Motion for
leave to File Daubert Motion (Doc. 738); Northern’s
Response (Doc. 744); and Defendant’s Reply (Doc. 755).
I. Northern Motion in Limine to Exclude 2010 Simulation.
Northern worked on a computerized gas migration model, referred
to as “the 2010 simulation,” intending to use it in Northern’s 2009

FERC application.1 Northern created the model by inputting data into
a leased software program called “Eclipse.” Northern says the model
was never completed and was abandoned in 2010. It now moves for an
order prohibiting use of the 2010 simulation at trial, citing the
following reasons: the simulation is not based on facts similar to
known conditions (i.e., it does not include data for the known
fracture porosity of the 2010 Extension Area); it uses incomplete and
inaccurate facts (including what Northern says are artificially
assumed concentrations of native gas to simulate migration pathways
in the Extension Area); it did not generate results consistent with
known

conditions

(such

as

rapid

gas

movement

through

observed

fractures in the upper Viola formation); and it does not comply with
standard reservoir engineering practices. Additionally Northern argues
the simulation does not “fit” the relevant scientific issues, in part
because it was abandoned in May 2010 and does not incorporate
significant data acquired thereafter.2

1

Northern used a model referred to as the 2007 Simulation in a
prior FERC application. The 2007 Simulation is not at issue here.
2

Northern says it eventually concluded that the 2010 simulation
was not necessary because an accumulation of other data – including
production data on defendants’ wells – demonstrated the nature and
scope of gas migration in the 2010 Extension Area. It says attempts
to work on the model were stopped “after it became apparent that the
fractured nature of the upper Viola reservoir into which nearly 30
third-party operator wells had been completed could not be properly
accounted for in the model without significant revisions to the entire
model.” (Doc. 735-1 at 5). Unable to simulate the flow from a
fractured portion of the formation, Northern says it resorted to
inputting various assumptions into the model, including “arbitrarily
assign[ing] native gas accumulations” in and around the northern part
of the Extension Area. Northern says that although the data did not
support or reflect such gas accumulations, it used the assumption to
artificially create gas-permeable pathways and thereby simulate the
flow of the fractured portion of the Viola.
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Defendants, meanwhile, contend Northern is attempting to exclude
the 2010 simulation because its results contradicted Northern’s
experts and Northern’s prior representations. Defendants argue the
model shows that storage gas migrated to the Extension Area before
defendants began producing in that area and then leveled off after
defendants began producing, all contrary to Northern’s current theory
of migration. Defendants argue the 2010 simulation is admissible at
least to impeach Northern witness Randal Brush, who worked on the
simulation. Defendants further assert that their own experts may rely
on the 2010 simulation pursuant to Rule 703 of the Federal Rules of
Evidence. They note that if experts would reasonably rely upon such
data in forming an opinion, the data itself need not be admissible for
the

expert’s

opinion

to

be

admitted.

Finally,

defendants

argue

Northern’s motion is premature because defendants’ experts have not
yet explained how they will use the model.
The 2010 simulation is potentially relevant for impeachment
purposes. To the extent Northern’s experts offer opinions at trial
that differ from results (preliminary or otherwise) obtained under the
2010 simulation, defendants may be entitled to ask the witnesses why
there is a difference and why Northern abandoned the model. The
witnesses can offer the explanations cited above – e.g., incomplete
data,

invalid

assumptions,

or

results

at

variance

from

known

conditions. But ultimately it will be up to the Commission to consider
whether results from the 2010 simulation are relevant and whether they
contradict Northern’s current position or otherwise undermine the
credibility of its witnesses. The Commission may find that results
from the model are so unreliable or limited as to say virtually
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nothing about the witnesses’ current opinions, or it may conclude that
the

results

cast

substantial

doubt

on

the

witnesses’

present

testimony. The Commission is better suited than the court to assess
the significance of how various assumptions or limited data effect the
reliability of a gas migration model. It rests within the sound
discretion of the Commission to decide how much evidence relating to
the 2010 simulation is relevant and what weight, if any, it should be
given.
As

for

whether

defendants

may

offer evidence of the 2010

simulation through their own experts, the court concludes for the
reasons discussed infra in Section III that any challenge to the
scientific reliability of any expert opinion based on the 2010
simulation

should

be

raised

in

the

first

instance

before

the

Commission.
II. Northern’s Motion to Exclude Trans Pac Litigation Materials.
To a substantial degree, this motion duplicates the points and
authorities raised and responded to in the motion to exclude the 2010
simulation. It may be that this sort of excess briefing impresses the
clients; it does not impress the court.
Northern seeks an order prohibiting use of materials from the
Trans Pac litigation3 as substantive evidence at trial. Although
conceding that expert reports and testimony from the Trans Pac case
may be properly used to impeach its experts at trial, Northern argues
such material cannot be introduced as substantive evidence because it
is hearsay. It argues the experts who authored the reports in Trans
3

Northern Nat. Gas Co. v. Trans Pacific Oil, Case No. 02-1418
(D. Kan.).
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Pac are not “unavailable” within the meaning of Federal Rule of
Evidence 804 because defendants made no effort to depose them or
obtain their presence at trial. Additionally, it contends the prior
statements of these experts cannot be attributed to Northern under
Rule 801(d)(2). Finally, it argues the Trans Pac expert opinions are
now unreliable – because they do not take into account the past eight
years of accumulated data about the storage field – and that their
admission would result in unfair prejudice.4
Both sides agree the Trans Pac material can be properly used for
impeachment purposes. In light of this, the parties’ extensive dispute
about whether the materials can also be used as substantive evidence
seems to the court to be an expensive academic exercise without much
significance. Be that as it may, the court will not prohibit the
Commission from considering these materials as evidence. Defendants
have made a preliminary showing that the Netherland, Sewell expert
opinions from the Trans Pac case qualify as non-hearsay under Fed. R.
Evid. 801(d)(2). That rule allows a statement to be offered against
a party if it is one that the party “manifested that it ... believed
to be true.” Northern’s prior use of these expert opinions in the
Trans Pac trial satisfies that standard.
Having said that, it is (again) entirely within the Commission’s
discretion to determine how much of this evidence is relevant and what
weight to give it. It is not clear from the briefs how much bearing
the Trans Pac materials have on the migration questions before the
4

Northern concedes that the Commission, being composed of
experienced professionals, is unlikely to be confused or misled by
this evidence, but argues the introduction of such evidence would be
a waste of time for the parties and the Commission.
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Commission. The Trans Pac opinions are obviously dated and were made
without benefit of a significant amount of subsequent data, including
new production and testing data from the Extension Area. As Northern
points out, there is no way to know whether the experts who gave the
opinions in Trans Pac would have the same opinions today. But whether
the Trans Pac opinions are indicative of opportunistic theory-shifting
by Northern, as defendants repeatedly claim, or instead represent a
prior

theory

that

was

superseded

by

changed

circumstances

and

information, as Northern maintains, are questions the Commission is
fully qualified to consider and address.5 The Commission may consider
the Trans Pac materials to the extent and for the purposes it
considers appropriate. If it concludes the materials are not relevant
it may disallow them. Even if it finds them relevant, it may limit or
disallow them if it concludes the presentation of such materials would
be

a

waste

of

time

that

outweighs

the

probative

value

of

the

materials. See Fed. R. Evid. 403.
III. L.D. Drilling’s Motion in Limine and Motion for Leave to file
Daubert Motion.
A. “Bad intent” Evidence. L.D. Drilling moves to exclude any
evidence or argument before the Commission “as to the producers’
motives, intent, knowledge and reasonableness,” arguing (among other
things) that such issues are not relevant to the valuation question

5

Given that a jury in Trans Pac rejected Northern’s theory of
storage gas migration to the Park wells, the presence of any storage
gas in the Extension Area would have to be explained by some other
theory. Defendants can argue to the Commission that Northern’s theory
shifting weighs against its experts’ credibility, but the mere fact
that a prior theory was disproved does not mean Northern’s current
theory is false. Cf. Aesop’s Fables, “The Boy Who Cried Wolf.”
-6-

the Commission must determine. Northern states in response that it
“will not offer ... evidence in this proceeding that the producerdefendants’ actions were unreasonable, or that the producer-defendants
had bad motives or intentions, or knew that their actions would draw
storage gas away from Northern’s Cunningham Storage Field.” Doc. 744
at 2. But Northern does intend to offer evidence that defendants’
production of gas and water in the Extension Area caused storage gas
migration. Northern argues such causation evidence is relevant and
proper to explain the physical process by which storage gas migrated
to the Extension Area and the resulting quantity of storage gas that
can be found there.
L.D. Drilling points out that under Northern Nat. Gas Co. v.
ONEOK Field Servs. Co., 296 Kan. 906 (2013), the cause of any storage
gas migration is irrelevant to who holds title to the gas, and it
contends any evidence of causation could have no purpose but to impugn
the producers:
Why, then, would Northern want to make to the
commissioners the irrelevant point that the
storage gas that migrated to the producers’
extension area wells did so because of the
producers’ acts, as opposed, say, to Northern’s
acts or happenstance? Exactly, and only, because
Northern’s evidence of causation implies the
producers’ bad intent.
Doc. 755 at 4.
This attempt to exclude all evidence of the cause of storage gas
migration borders on the frivolous. In assessing the value of the
various tracts, the Commission will have the difficult task of
estimating how much storage gas is in the Extension Area and, at least
in some cases, when that migration occurred. L.D. Drilling does not

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explain how the Commission could possibly do so without taking into
account the cause of the migration. It is patently obvious that the
mechanism by which any storage gas migration occurred has a bearing
on how much gas went to the Extension Area and when it did so. The
amount of storage gas in the Extension Area is a function of the
mechanism that brought it there. L.D. Drilling has shown no grounds
for excluding such evidence of causation.
B. Request for Leave to File Daubert Motions. At the September
4, 2013, status hearing, the court informed the parties of its views
regarding the value of Daubert motions in this type of case. First,
although the court rather than the Commission would have undertaken
any challenges to the underlying qualifications of a witness to offer
an expert opinion, there have been no such challenges. Second, with
respect to more substantive Daubert matters – such as claims that an
expert’s opinion lacked an adequate factual basis or was not the
product of reliable methods – the court strongly suggested that the
Commission was uniquely qualified to consider such questions. For that
reason, the court observed that it would be a waste of time to
consider pre-trial Daubert motions, and that such issues should be
resolved by the Commission in the first instance.
At the hearing, only counsel for L.D. Drilling protested this
procedure, arguing that it could violate constitutional protections.6
6

Jim Goering, one of L.D. Drilling’s counsel, stated: “I believe
Daubert is a constitutional issue....” When the court asked Mr.
Goering “What constitutional issue are you thinking about...?”, he did
not specifically identify one. The court told Mr. Goering that if the
court’s ruling regarding Daubert motions “[v]iolates L.D.’s
constitutional rights, then I guess you could file a motion directed
to the constitutional issue as opposed to the Daubert issue....” Doc.
727 at Pp. 75-76.
-8-

As a result the court reluctantly set a deadline for briefing and for
requesting leave to file Daubert motions. L.D. Drilling’s resulting
35-page

prolix

motion

and

reply

say

not

one

word

about

a

constitutional issue, much less cite a case raising a Daubert hearing
to

a

constitutional

right.

Instead,

L.D.

Drilling

attacks

the

credibility of Northern’s experts (likening them to “compurgators”7)
and argues that in fairness L.D. Drilling should be able to file
Daubert motions after Northern’s experts have been deposed. The reply
also chides Northern for citing “no authority whatsoever for its
argument that the commissioners’ expertise and sophistication relieve
this Court of the gatekeeping duties that Daubert imposes” and for
failing to show that “the commissioners have special expertise with
respect to the particular scientific principles and methodologies that
L.D. Drilling will challenge as insufficient.” (Doc. 755 at 6-7).
The Commission appointed to hear this matter – whose members
were reviewed and approved by the parties – includes two lawyers with
7

The court, having not run across a “compurgator” before, had
to look the term up in Black’s Law Dictionary. In case anyone reading
this order has even the remotest interest in the definition, it is
“one of several neighbors of a person accused of a crime, or charged
as a defendant in a civil action, who appeared and swore that they
believed him on his oath.” The application of the term to this case
escapes the court.
Defendants, who vociferously complain about having been called
“cattle rustlers” and “gas stealers” by Northern, have themselves
repeatedly accused Northern of bad faith and of knowingly advancing
unfounded positions. When it comes to hurling epithets, both sides
have at times employed “the Chicago way,” meaning (as explained by
Sean Connery in “The Untouchables”): “He pulls a knife, you pull a
gun. He sends one of yours to the hospital, you send one of his to the
morgue.”
Once again – and for the last time – the court admonishes counsel
that it is neither impressed nor swayed by these sorts of tactics. Nor
will be the commissioners, each of whom is a professional. The only
concrete result of these tactics has been to delay the ultimate
resolution of the case.
-9-

extensive experience in oil and gas law (one of whom has a degree in
petroleum engineering); a certified appraiser (37 years experience)
who specializes in commercial real estate; a petroleum reservoir
engineer (38 years experience) whose work involves evaluating oil and
gas reserves; and an experienced petroleum engineer with a special
expertise in reservoir analysis. The court is not informed about what
“particular principles and scientific methodologies” L.D. Drilling
expects to challenge, but it is unmistakably clear to the court that
the Commission is supremely qualified to identify and weed out any
expert

opinions

that

are

not

reliable,

helpful,

or

adequately

supported.
A commission appointed under Rule 71.1 has the powers of a
master under Rule 53(c). Fed. R. Civ. P. 71.1(h)(2)(D). Those powers
include the authority to “regulate all proceedings”; to “take all
appropriate

measures

to

perform

the

assigned

duties

fairly

and

efficiently”; and to “exercise the court’s power to compel, take, and
record evidence.” Fed. R. Civ. P. 53(c). This has traditionally
included the power to rule upon the admissibility of evidence unless
the order of reference provides otherwise. See 9C Fed. Prac. & Proc.
Civ. §2609, Arthur Miller (3rd ed).
L.D. Drilling cites no authority to show that the court cannot
refer Daubert-type challenges to the Commission in the first instance,
with appropriate instructions. Other courts have taken a similar
approach. See Guardian Pipeline, L.L.C. v. 950.80 Acres of Land, 486
F.Supp.2d 741, 749 (N.D. Ill. 2007) (affirming Commission’s finding
that witness’ testimony was reliable under Daubert); U.S. ex rel.
Tennessee Valley Authority v. An Easement and right-of-way over a
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Total of 8.62 Acres of Land, more or less, in Rutherford County,
Tennessee, 2010 WL 3491216, 8 (M.D. Tenn. 2010) (Commission disposing
of Daubert challenge: “If the Commission is to be treated as an entity
more akin to a magistrate, special master, or referee than a jury, as
the Commission believes, then the Commission would not see the need
to be protected from potentially confusing or misleading science, and
be sufficiently competent to not need a ‘gatekeeper’ function.”). Any
due process concerns here are more than satisfied by the opportunity
to challenge expert opinions before the Commission and, if necessary,
to seek review of the Commission’s report under Fed. R. Civ. P. 53(f).
To make it perfectly clear, this court will not hold Daubert hearings.
IV. Conclusion.
Northern’s Motion in Limine to Exclude 2010 Simulation (Doc.
734) is DENIED;
Northern’s Motion in Limine to Limit Trans Pac Materials (Doc.
736) is DENIED; and
L.D. Drilling’s Motion in Limine and For Leave to File Daubert
Motion (Doc. 738) is DENIED.
A motion for reconsideration of this order is not encouraged.
The standards governing motions to reconsider are well established.
Comeau v. Rupp, 810 F.Supp. 1172 (D. Kan. 1992). Any such motion shall
not exceed three pages and shall strictly comply with the standards
enunciated by this court in Comeau v. Rupp. The response to any motion
for reconsideration shall not exceed three pages. No reply shall be
filed.
IT IS SO ORDERED.
Dated this 27th

day of December 2013, at Wichita, Kansas.
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s/Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE

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