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

Filing 810

MEMORANDUM AND ORDER denying 677 Second Motion for Partial Summary Judgment; granting 699 Cross Motion for Partial Summary Judgment. Signed by District Judge Monti L. Belot on 3/5/14. (alm)

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.,
)
)
Defendants.
)
)

CIVIL ACTION
No.

10-1232-MLB-DWB

MEMORANDUM AND ORDER
This matter is before the court on:
Northern’s Second
(Docs. 677, 678);

Motion

for

Partial

Summary

Judgment

Producer-Defendants1 Response and Cross-Motion for Partial
Summary Judgment (Docs. 699, 700) and joinder by other
defendants (Docs. 701, 702);
Northern’s combined Response and Reply (Doc. 715); and
Defendants’ Reply (Docs. 731, 732).
I. Background.
Northern brought this condemnation action pursuant to the Natural
Gas Act, 15 U.S.C. § 717f(h), to acquire additional acreage for use
in its underground natural gas storage field near Cunningham, Kansas.
1

L.D. Drilling, Inc., Nash Oil & Gas Co., Val Energy, Inc., and
Five-Star Energy, Inc. Doc. 699 at 1.

Since the late 1970’s, Northern has operated an underground
natural gas storage facility in south-central Kansas known as the
Cunningham
underground

Storage

Field.

reservoir

that

The

facility

uses

was

substantially

a

large

depleted

natural
following

decades of native gas production from the reservoir. Pursuant to
authority granted by the Federal Energy Regulatory Commission (FERC),
Northern’s

operation

involves

transporting

natural

gas

produced

elsewhere to the field and injecting it into the reservoir. The gas
can then be withdrawn in periods of high demand and transported to
out-of-state markets. Such injected “storage gas” may have a different
chemical composition than the “native” gas naturally found in the
area. See K.S.A. § 55-1201(c) (“‘native gas’ shall mean gas which has
not been previously withdrawn from the earth”; “storage gas” is not
defined by Kansas statute).
Northern’s original certificate from FERC allowed it to acquire
and store gas in an underground area covering more than 26,000 acres.
Northern began to suspect at least by the 1990’s that its storage gas
was migrating out of the field and was being produced by nearby gas
well operators. After litigating (and losing) several lawsuits,
Northern returned to FERC and sought authority to acquire additional
acreage for use as a buffer zone for the storage field. In 2008 it was
granted a certificate to condemn an additional 1,760 acres. In 2010
it was granted a certificate to condemn an additional 12,320 acres.
This latter “2010 Extension Area” is the subject of the instant

-2-

condemnation.2 Northern obtained voluntary storage lease rights in
about

30%

of

the

2010

Extension

Area;

it

is

proceeding

with

condemnation of rights in the remainder of the Extension Area.
The motions before the court deal with storage gas that migrated
into the 2010 Extension Area as of March 30, 2012, the “date of
taking” of that area by Northern.3 Specifically, the motions seek a
determination of whether Northern must pay just compensation for the
taking of migrated storage gas in the 2010 Extension Area. There is
no dispute that the defendant landowners (or their assignees) are
entitled to just compensation for any economically recoverable native
gas that was under their property on the date of taking.
Northern argues the Kansas Underground Gas Storage Act, K.S.A.
§ 55-1201 et seq. (hereinafter the “Storage Act”), requires it to pay
only for native gas in the 2010 Extension Area. It further contends
that under Union Gas System, Inc. v. Carnahan, 245 Kan. 80, 774 P.2d
962 (1989), title to any storage gas in the Extension Area reverted
to Northern (or “re-vested”) once Northern obtained the 2010 FERC
certificate.

Northern

contends

defendants

held

a

fee

simple

determinable interest in any migrated storage gas, and that their
interest terminated under Kansas law once Northern obtained the FERC
certificate. Northern thus argues it does not have to pay just
compensation for storage gas in the Extension Area.
2

The lone exception appears to be Tract 3152711, a 7.87 acre
tract in the 2008 Extension Area that is included in Northern’s
condemnation complaint.
3

See Memorandum and Order of July 2, 2013 (Doc. 691) determining
the date of taking was March 30, 2012, when the court granted Northern
an injunction allowing it to take possession of the entire 2010
Extension Area.
-3-

Defendants respond that under Kansas law, including the Supreme
Court’s ruling in Northern Natural Gas Co. v. ONEOK Field Svcs. Co.,
296 Kan. 906, 296 P.3d 1106 (2013), Northern lost title to any storage
gas that migrated to the Extension Area. By virtue of the “ownership
in place” theory of Kansas oil and gas law, defendants contend any
migrated storage gas became their property once it entered the
Extension Area. They assert that the FERC certificate had no effect
on their title and that Northern must pay just compensation for the
taking of their rights in storage gas as of the date of taking.
II. Uncontroverted Facts.
Northern is a natural gas company as defined by the Natural Gas
Act (NGA), 15 U.S.C. § 717. Northern owns and operates the underground
natural gas storage field known as the Cunningham Storage Field in
Reno, Kingman and Pratt counties, Kansas, pursuant to a series of
certificates of public convenience and necessity from FERC.
On

October

30,

2008,

FERC

issued

a

Certificate

of

Public

Convenience and Necessity authorizing Northern’s expansion of the
certificated

boundaries

of

the

Cunningham

Storage

Field

by

approximately 1,760 acres. Through the October 30, 2008, Certificate,
FERC authorized “the expansion of Northern’s certificated boundary to
include, and Northern’s acquisition of all property interests in, the
Viola and Simpson formations” in the following acreage:
Section
N ½ of 13
W ½ of 14
NE ¼ of 14
E ½ of 15
NE ¼ of 22
NW ¼ of 18

Township
27S
27S
27S
27S
27S
27S
-4-

Range
11W
11W
11W
11W
11W
10W

County
Pratt
Pratt
Pratt
Pratt
Pratt
Kingman

S ½ of 7

27S

10W

Kingman

This acreage is referred to as the 2008 Extension Area.
On June 2, 2010, FERC issued another Certificate of Public
Convenience and Necessity “authorizing expansion of Northern’s
certificated buffer zone to include the Viola and Simpson
Formations” in Pratt, Reno, and Kingman Counties, Kansas by 12,320
acres.
Through the June 2, 2010 Certificate, FERC approved the
following acreage:
Section(s)
23 - 27
34 - 36
S ½ of 22
SE ¼ of 33
1-3
10 - 12
E ½ of 4
E ½ of 9
30 - 31
6
N ½ of 7

Township
26 S
26 S
26 S
26 S
27 S
27 S
27 S
27 S
26 S
27 S
27 S

Range
11 W
11 W
11 W
11 W
11 W
11 W
11 W
11 W
10 W
10 W
10 W

County
Pratt
Pratt
Pratt
Pratt
Pratt
Pratt
Pratt
Pratt
Reno
Kingman
Kingman

This acreage is referred to as the 2010 Extension Area. (Unless
indicated otherwise, any reference in this order to the “Extension
Area” refers to the 2010 Extension Area.)
Some of the natural gas at issue in these cross-motions for
summary judgment is storage gas that migrated more than one section
beyond any section containing the pre-condemnation boundaries of
the Cunningham Storage Field. The Producer-Defendants (L.D.
-5-

Drilling, Nash, Val and Five Star4) operate wells in the 2010
Extension Area that are more than a section beyond any section
containing the boundaries of the Cunningham Storage Field as those
boundaries stood immediately prior to the June 2, 2010 FERC order.
Nothing in the June 2, 2010 FERC Order states that it confers
title to any natural gas, or to any other property, upon Northern
before Northern pays for the property being condemned, or before
the condemnation process has been completed.
The parties agree there may be a significant amount of storage
gas located in the 2010 Extension Area.
III. Summary Judgment Standards.
The rules pertaining to summary judgment are well-established.
Federal Rule of Civil Procedure 56(c) directs the entry of summary
judgment in favor of a party who “show[s] that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). An issue is
“genuine” if sufficient evidence exists so that a rational trier of
fact could resolve the issue either way and an issue is “material”
if under the substantive law it is essential to the proper
disposition of the claim. Adamson v. Multi Community Diversified
Svcs., Inc., 514 F.3d 1136, 1145 (10th Cir.2008). When confronted
with a fully briefed motion for summary judgment, the court must

4

At a status conference on February 26, 2014, counsel for Five
Star and Northern stated that the claims involving Five Star will
likely soon be resolved and it will be dismissed from the case.
-6-

ultimately determine “whether there is the need for a trialwhether, in other words, there are any genuine factual issues that
properly can be resolved only by a finder of fact because they may
reasonably be resolved in favor of either party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). If so, the court
cannot grant summary judgment. Celotex Corp. v. Catrett, 477 U.S.
317, 322–23 (1986).
IV. Discussion.
The applicable procedures for condemnation under the Natural
Gas Act are supplied by Rule 71.1 of the Federal Rules of Civil
Procedure. See e.g., East Tennessee Natural Gas Co. v. Sage, 361
F.3d 808, 822 (4th Cir. 2004); Southern Star Central Gas Pipeline,
Inc. v. 842 Mineral and Leasehold Acres of Land, No. 08-1313, slip
op. at 3 (D. Kan., Mar. 16, 2010) (Rule 71.1 supersedes the NGA’s
provision endorsing state condemnation procedures).5 But the
substantive law of Kansas determines the extent of the parties’
property rights and the standards for determining just
compensation. Southern Star, supra; Columbia Gas v. Exclusive
Natural Gas, 962 F.2d 1192, 1199 (6th Cir. 1992) (amount of
compensation due under § 717f(h) is determined using law of the

5

Although the NGA (15 U.S.C. § 717f(h)) states that the
procedure for eminent domain shall conform as nearly as possible to
the State procedure where the property is located, that provision is
effectively nullified by the Rules Enabling Act’s “supersession
clause” [28 U.S.C. § 2072(b)] and Rule 71.1. See Guardian Pipeline,
L.L.C. v. 295.49 Acres of Land, 2008 WL 1751358, *12 (E.D. Wis. 2008).
-7-

state in which the condemned property is located).
The Kansas law pertaining to ownership of stored natural gas
has followed a somewhat tortuous path. Unfortunately, the court
must once again review that history in order to resolve the title
questions that are at the heart of the instant summary judgment
motions.
A. Background of Kansas Oil and Gas Law.
As explained by the Kansas Supreme Court, the law of Kansas
has long been that native oil and gas in the ground belong to the
owner of the land as long as those minerals remain on or in the
land or subject to the landowner’s control.6 See Northern Natural
Gas Co. v. Martin, Pringle, Oliver, Wallace & Bauer, LLP, 289 Kan.
777, 217 P.3d 966 (2009) and Northern Natural Gas Co. v. ONEOK
Field Services Co., 296 Kan. 906, 296 P.3d 1106 (2013), cert.
denied, 2013 WL 2903456, 82 U.S.L.W. 3005 (U.S. Oct. 7, 2013).
Under this “ownership in place” theory, Kansas landowners own a
present estate in oil and gas in the ground. Martin, Pringle, 289
Kan. at 788. But when oil and gas escape and go into other lands,
or come under another’s control, the title of the former owner is
- in the Tenth Circuit’s words - “lost.” Bezzie v. Hocker, 370 F.2d
533, 536 (10th Cir. 1996) (applying Oklahoma law). In this respect,

6

For purposes of the instant motion it is immaterial whether the
oil and gas ownership rights were held by landowners or by someone
else (such as a lessee) claiming an interest derived from a landowner.
-8-

the interest of a landowner in native gas in the ground is a
defeasible interest. Under the rule of capture, such migrating gas
becomes the personal property of the first person to produce it.
These ownership principles initially evolved with respect to
native gas. Kansas law dealing specifically with previouslycaptured and re-injected storage gas developed more recently. In
1951, the Kansas legislature enacted the Storage Act to promote the
underground storage of natural gas, finding it was in the public
interest to build natural gas reserves that allow orderly
distribution in periods of peak demand. Among other things, the
Storage Act allows natural gas public utilities to condemn
subsurface property for use as underground storage facilities if
they first obtain a certificate from the Kansas Corporation
Commission (KCC). The KCC may issue a certificate after public
hearings if it finds the property is suitable and that its use for
storage is in the public interest, and after it determines the
amount of recoverable oil and native gas, if any, remaining in the
formation to be acquired. K.S.A. § 55-1204. In awarding damages for
condemnation of such subsurface formations, the Act directs
appraisers to take into consideration the amounts of recoverable
oil and native gas remaining in the property and to accept the
findings of the KCC as prima facie evidence of those amounts.
K.S.A. § 55-1205.
Federal law similarly allows for condemnation of underground

-9-

formations for natural gas storage. Pursuant to the Natural Gas
Act, 15 U.S.C. § 717f, FERC may issue a Certificate of Public
Convenience and Necessity allowing an applicant to establish or
extend facilities for transportation or sale of natural gas in
interstate commerce, including underground gas storage areas,
through exercise of the United States’ right of eminent domain.
Northern’s condemnation authority in this case is based on a FERC
certificate.
In Anderson v. Beech Aircraft Corp., 237 Kan. 336, 699 P.2d
1023 (1985), Beech Aircraft injected captured natural gas into a
common natural reservoir underlying its own property and the
neighboring property. It had no permission to use the neighboring
property. A lawsuit ensued when a producer on that property began
producing storage gas. The Supreme Court held that the rule of
capture applied in these circumstances, meaning Beech lost title to
the gas when it was injected into the reservoir and produced on the
adjoining property. The court emphasized that the Storage Act
provided a mechanism for condemning underground storage formations,
but Beech was not a natural gas public utility and had not obtained
a certificate from the KCC authorizing the storage facility. Apart
from an historical perspective, Beech has no application here
because Northern has obtained the requisite condemnation authority
from FERC.
B. Union Gas.

-10-

In Union Gas System, Inc. v. Carnahan, 245 Kan. 80, 774 P.2d
962 (1989), a natural gas public utility (Union Gas) had begun in
1952 to inject captured natural gas in the depleted Squirrel
formation underlying Montgomery County. It continued to use the
formation for storage for more than 30 years without ever obtaining
authorization from the KCC. In 1985, shortly after the Anderson v.
Beech decision, producer Carnahan drilled two gas wells in the
Squirrel formation on the neighboring DeTar property. Union Gas
filed a damage suit and asked the court to halt the production, but
its request was denied. Union Gas then applied for a KCC
certificate to condemn the formation under the DeTar property. On
January 13, 1986, the KCC granted the application, and Union Gas
initiated a condemnation suit. Meanwhile, Carnahan continued his
production of gas until August of 1986. The KCC had been unable to
determine the ratio of native to storage gas on the evidence before
it, but the parties stipulated that Carnahan’s production was about
17% native gas and the rest was storage gas. Union Gas, 245 Kan. at
93.
In a consolidated appeal of the condemnation and damage suits,
the Kansas Supreme Court made a number of rulings. The first issue
was whether Union Gas was entitled to recover for any of its
storage gas produced by Carnahan. The Supreme Court said Union
Gas’s choice to forego KCC certification and condemnation when it
began storage operations in 1952 placed it under the rule of

-11-

Anderson, i.e., the rule of capture. As such, Union Gas was not
entitled to recover for any storage gas produced by Carnahan before
the KCC certificate was issued. Union Gas, 245 Kan. at 87. But the
court held Union Gas was entitled to a set-off for storage gas
produced by Carnahan after the KCC certificate was issued. The
court reasoned as follows:
Union acquired no rights to the DeTars'
property until April 9, 1987 [the date of
taking]. However, the question remains as to
its rights to its own gas from January 13,
1986, to April 9, 1987. Since Union established
itself as a public utility and was authorized
to store its gas underground by the Commission
certificate issued on January 13, 1986, it
thereafter acquired a changed status. Its
operation was given official sanction and its
gas was identified. Thereafter it became an
exception to the rule of capture expressed in
Anderson.
Cross-appellants, relying on the rule of
capture, legitimately took advantage of Union's
pressurizing the Squirrel horizon under the
DeTar land without authority and recovered both
previously unrecoverable native gas and Union's
injected gas which had migrated onto the
DeTars' property. They then sold the gas to
Salem and Scissortail, who in turn sold it to
Williams, who then sold it to Union for
reinjection into the North field. This created
a clever circle of purloined production, and a
successful one under the rule of capture as
stated in Anderson. But all good things must
eventually come to an end. This scheme ended
when Union received its certificate of
authority from the Commission on January 13,
1986. The law abhors a forfeiture. So, as soon
as Union's storage operation became authorized
and its gas identifiable, the gas was no longer
ferae naturae and subject to the rule of
capture. The title to Union's captured gas
remained in Union. Thus, Union did not forfeit
-12-

its natural gas produced after January 13,
1986, even though it acquired no title to the
DeTars' property until the date of taking,
April 9, 1987. Consequently, we hold Union is
entitled to a setoff for the value of its
injected gas produced by cross-appellants after
January 13, 1986. The value of its gas is the
selling price less its share of the cost of
production, including a reasonable rental for
the use of the DeTars' land.
Union Gas, 245 Kan. at 88-89. The court went on to reject
Carnahan’s argument that he was entitled to just compensation for
the value of the storage gas remaining under the DeTar property.
The court said the Storage Act specified that only native gas was
to be considered. (Citing inter alia K.S.A. § 55-1204(a)(2) and
§55-1205)).7
C. Adoption of K.S.A. § 55-1210.
Effective July 1, 1993, the Kansas legislature amended the
Storage Act by adding §55-1210. Subsection (a) of that statute
provides in part that all natural gas previously reduced to
possession and injected into underground storage fields or
reservoirs shall at all times be the property of the injector.
Subsection (c) provides in part that with regard to gas that has
migrated to adjoining property which has not been condemned or

7

The court observed that the Kansas Storage Act “was intended
to operate prior to the injection and storage of gas by a natural gas
public utility.” Union Gas, 245 Kan. at 89. This would explain why the
statute only requires a determination of how much native gas in is the
property and why appraisers are only directed to consider the amount
of native gas. Essentially, K.S.A. § 55-1205 contemplates condemnation
of an underground area before storage operations begin, meaning there
would be no storage gas to be taken into account.
-13-

purchased, the injector shall not lose title to such gas if it can
prove by a preponderance of evidence that such gas was originally
injected into the underground storage.
D. Northern v. Martin, Pringle.
In 2009, the Kansas Supreme Court addressed a certified
question in a suit by Northern against its former attorneys.
Martin, Pringle, 289 Kan. 777, 217 P.3d 966. The certified question
addressed whether Northern lost title to injected storage gas that
migrated to adjoining property before the effective date of §551210, given that the gas had not been captured or produced by
anyone by that date. Northern argued that § 55-1210 “re-vested” it
with title to the gas. Pointing to the set-off granted to the
injector in Union Gas, Northern argued that “title to migrated
storage gas previously subject to the Rule of Capture revests in
the injector immediately when the Rule of Capture ceases to apply.”
The Supreme Court brushed aside this argument. (“Of course,
Union Gas said no such thing.”). It said Union Gas “clarified that
[a natural gas public] utility has the statutory ability to obtain
a certificate for an underground gas storage area and that the
failure to use that remedy places the utility squarely under the
rule of Anderson.” Martin, Pringle, 289 Kan. at 790-91. The court
said because “Northern did not obtain a certificate to condemn the
adjacent landowner’s property prior to July 1, 1993, the adjoining
landowners possessed a right, title, and interest in and to the gas

-14-

which migrated to the adjoining property as of that date.” Martin,
Pringle, 289 Kan. at 791. The landowners thus “possessed the legal
right to produce and keep the injected gas which had migrated onto
their property, unless and until Northern obtained a certificate to
expand its storage area onto their land and paid them for that
privilege through a condemnation action.”8 Although K.S.A. § 551210 “abolished that right,” according to the court, such a
substantive change to vested rights could not be applied
retroactively and must be prospective only. Martin, Pringle, 289
Kan. at 791.
E. Northern v. ONEOK.
The Supreme Court again addressed § 55-1210 in Northern v.
ONEOK. That case dealt with claims of conversion of storage gas
that migrated beyond the post-October 2008 boundaries of the
Cunningham Storage Field, where it was produced and sold by several
of the Defendant-Producers. The court said subsections (a) and (b)
of § 55-1210 give an injector title to storage gas that remains
within its certified storage area. Subsection (c) permits the
injector to retain title to storage gas “which migrates
horizontally within a stratum to adjoining property or vertically
to a different stratum.” The term “adjoining property” was
8

In dismissing Northern’s “re-vesting” argument out of hand, the
Martin, Pringle opinion did not explain how the landowner’s vested
property interest in Union Gas could be transferred to the injector
without any requirement for compensation, nor did it explain what
Union Gas meant when it said “the title to Union's captured gas
remained in Union” after it obtained a KCC certificate.
-15-

construed by the court to mean “any section of land which touches a
section containing a storage field.” ONEOK, 296 Kan. at 922 (citing
Williams Nat. Gas Co. v. Supra Energy, Inc., 261 Kan. 624, 931 P.2d
7 (1997)). The court concluded that “adjoining property” was
intended as a geographical limitation on the injector’s title to
migrating storage gas, meaning that if storage gas migrates beyond
the “adjoining property,” the injector loses its title and the rule
of capture once again applies. The court found that all of the
wells at issue in that case were beyond the confines of “adjoining
property.” Accordingly, the Producer-Defendants rather than
Northern had title to any such storage gas and there was no
conversion of it.
F. Viability of Union Gas.
Union Gas made two rulings of significance here. First, it
found that issuance of a KCC certificate meant that storage gas
which had migrated into the property to be condemned was no longer
subject to the rule of capture. Title to such gas “remained in” the
injector as of the date of the certificate. Second, it found that
K.S.A. § 55-1205 only requires a condemnor in such circumstances to
pay compensation for the native gas in the property being condemned
and not for migrated storage gas.
If Union Gas still represents Kansas law, and if it can be
applied constitutionally (see discussion infra at pages 22-23),
then it would dictate that Northern’s motion be granted because

-16-

under the rule of Union Gas, the FERC certificate of June 2, 2010,
would mean title to storage gas in the Extension Area “remained in”
Northern as of that date.9 Northern would only have to compensate
defendants based on the recoverable native gas in that area. Not
surprisingly, the parties disagree whether Union Gas remains good
law.10
Defendants claim, among other things, that K.S.A. § 55-1205
does not preclude compensation for storage gas in this case, as it
did in Union Gas, because it is a procedural statute and does not
apply in this federal action. (Doc. 700 at 9). Section 55-1205 is
entitled “Eminent Domain Procedure,” and it sets out various

9

Although the Cunningham Storage Field was initially
certificated both by FERC’s predecessor and the KCC, the later
expansions were certificated only by FERC. The reason for this is not
clear in the record, but no party has raised it as an issue and the
court assumes for purposes of this motion that a FERC certificate
would have the same effect on property rights under Kansas law as a
KCC certificate.
10

Defendants additionally attempt to distinguish Union Gas on
its facts. They note that the KCC certificate in Union Gas authorized
the injector to store gas under the adjoining property, while
Northern’s FERC certificate only permits it to use the Extension Area
as a buffer zone. That is a factual difference, but nothing in Union
Gas suggests that it is a material one. Both certificates allow the
condemnor to obtain exclusive use of the specified area as part of its
storage field and both preclude any inconsistent use of the area by
the landowner.
Defendants also point out that the FERC certificate did not
estimate the amount of recoverable native gas in the property, while
the KCC certificate Union Gas had such a finding. But that is true
because K.S.A. § 55-1204 requires the KCC to make a finding of the
amount of native gas in the property in a condemnation under the
Kansas Storage Act. That procedural requirement does not apply in this
condemnation under the Natural Gas Act, which is governed by the
Federal Rules of Civil Procedure. Northern’s failure to follow the
state procedure does not affect the property rights at issue or the
standard for determining just compensation.
-17-

procedural requirements. But insofar as it declares that native gas
is compensable in condemnation but storage gas is not – which is
how Union Gas interpreted it – it is a substantive rule, not a
matter of procedure. To say that one item of property is
compensable but another is not is a prime example of a substantive
law in condemnation. It cannot be considered merely procedural.11
Defendants also contend Union Gas “has been superseded by both
statute and by far more recent case law.” (Doc. 700 at 4). Section
55-1210 clearly does supersede Union Gas insofar as that case said
an adjoining landowner could rely on the rule of capture to produce
storage gas. Section 55-1210(c)(1) precludes the rule of capture
for storage gas on adjoining property. See Unified School Dist. No.
501, Shawnee County, Kan. v. Baker, 269 Kan. 239, 243, 6 P.3d 848
(2000) (“If the legislature has spoken, the statement supersedes
common law”). But Union Gas also decided the two questions noted
above relating to condemnation, neither of which were specifically
addressed by § 55-1210.
Defendants contend Union Gas was effectively overruled by
Martin, Pringle and ONEOK because these subsequent cases reaffirmed

11

Any construction of Kansas law that would allow a condemnor
acting under state law to pay only for native gas but would require
a federal condemnor in the same circumstances to pay for both native
and storage gas would likely be an impermissible burden on interstate
commerce. See e.g., Granholm v. Heald, 544 U.S. 460, 472 (2005) (“Time
and again this Court has held that, in all but the narrowest
circumstances, state laws violate the Commerce Clause if they mandate
‘differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter.’”).
-18-

the “ownership in place” doctrine and recognized that landowners
have a present estate in the oil and gas under their property. By
contrast, they say, Union Gas did not treat the migrated gas as
belonging to any party before it was produced. But neither of these
more recent cases expressly overruled Union Gas. In fact, Martin,
Pringle seemed to rely on its holding about the significance of a
regulatory certificate, and ONEOK was specifically limited to
events before issuance of the 2010 FERC certificate, meaning ONEOK
did not decide whether that portion of Union Gas remains viable.12
See ONEOK, 296 Kan. at 937 (“Nash and L.D. had title to any such
migrating gas produced by their wells until June 2, 2010, when FERC
extended the certificated boundaries of the Field to include Nash’s
and L.D.’s wells, or brought those wells onto property adjoining
the expansion area.”).
Northern responds that Union Gas remains good law and that it
“recognized a special type of fee simple determinable property
interest in favor of the landowners.” (Doc. 715 at 11). This “fee
simple determinable” argument finds no mention or support in any
Kansas case law. And while this novel theory at least makes an
attempt to explain Union Gas’s holding that the landowner’s
property interest in migrated storage gas terminated when a KCC
12

The ONEOK opinion characterized Union Gas as “superseded by
statute as stated in Martin, Pringle.” ONEOK,296 Kan. at 920-21.
Westlaw’s Keycite system characterizes Union Gas as superseded by
statute as stated in Martin, Pringle and ONEOK. Lexis’ Shepards’
system, on the other hand, characterizes Union Gas as superseded by
statute as stated in ONEOK but followed by Martin, Pringle.
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regulatory certificate was issued, it raises other problems. Most
importantly, it ignores the cause-and-effect relationship between
authorization to condemn and the termination and transfer of the
landowner’s property interests. If defendants’ vested interests in
storage gas terminated because a governmental certificate to
condemn their property was issued, with the result that ownership
of those interests “remained in” or “re-vested” or in any other
fashion went to Northern because it operated a government-certified
storage facility, as a practical matter this change of ownership
would have to be viewed as a governmental taking of the landowners’
property rights.13 See e.g.,Penn Cent. Transp. Co. of City of New
York, 438 U.S. 104, 128 (1978) (“government actions that may be
characterized as acquisitions of resources to permit or facilitate
uniquely public functions have often been held to constitute
‘takings.’”); cf. Palazzolo v. Rhode Island,

533 U.S. 606, 630

(2001) (a regulation that otherwise would be unconstitutional
absent compensation is not transformed into a background principle
of the state's law by mere virtue of the passage of title). A
special type of defeasible interest that terminates when the
government decides the property is suitable for public use is but
another way of describing a taking of private property for a public
13

Under ONEOK’s construction of K.S.A. § 55-1210, an injector’s
right to retain title to injected storage gas apparently belongs only
to the operator of a storage facility certified by the government to
be in the public interest. Cf. Williams, 261 Kan. at 630 (“There is
nothing unconstitutional about permitting anyone to be considered an
injector for purposes of K.S.A. § 55-1210.”).
-20-

purpose. And as such it would constitutionally require the payment
of just compensation.
Faced with the alternatives, the court must agree with
defendants that Union Gas cannot be applied as Northern contends –
i.e., it cannot relieve Northern of the obligation to pay
compensation for migrated storage gas in which defendants held a
property interest. ONEOK made clear that in any section not
“adjoining” the post-2008 storage field, defendants possessed a
vested ownership interest in all of the gas – both native and
storage – under their property. Additionally, Martin, Pringle held
that any storage gas which migrated out of the storage field before
July 1, 1993 was subject to the rule of capture. As a result of
Martin, Pringle, then, defendants held title to any storage gas
that migrated out of the storage field before July 1, 1993,
regardless of whether or not their property “adjoined” the storage
field.
ONEOK and Martin, Pringle each relied on the “ownership in
place” theory of gas ownership. They characterized the landowner’s
interest as a “present estate in the oil and gas in the ground” and
possession of “a right, title, and interest in and to the gas” in
the ground. The landowner’s interest included a right to capture
the storage gas under their property. Union Gas effectively held
that this interest terminated upon issuance of a KCC certificate.
Insofar as Union Gas reached that conclusion merely because a

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certificate authorizing condemnation had been issued – while also
finding the landowners were entitled to no compensation for any
storage gas under their property – such a rule as applied here
would violate the Fifth Amendment.14 Because Kansas law now clearly
holds that a landowner’s right to such migrated storage gas in the
ground is a vested property right, the government cannot take it
for a public purpose without paying just compensation.15 So, for the
foregoing reasons, this aspect of Union Gas cannot be lawfully
applied and will be treated as having been effectively modified by
Martin, Pringle and ONEOK.
An argument can be made that the Union Gas rule poses no
constitutional hurdle if it is only applied prospectively. In other
words, a rule providing that an injector retains title to any
storage gas that migrates into a proposed extension area after the
issuance of a regulatory certificate to condemn the area arguably
does not deprive the landowner of any vested right. Cf. Martin,
Pringle, 289 Kan. at 791; Northern Nat. Gas Co. v. L.D. Drilling,

14

Defendants also accurately point out that such a taking of
their property would be inconsistent with the court’s determination
that the date of taking was March 30, 2012.
15

By contrast, Union Gas referred to a landowners’ “qualified
interest in the gas beneath the ... property” and said the landowners’
interest “is perfected only by capture.” Union Gas, 774 P.2d at 971.
The court notes that even if the landowners’ interest was limited to
the right to seek to produce the gas, as opposed to a present vested
title to it on the date of taking, it still was a valuable property
interest deriving its worth from the amount of gas in the ground. The
taking of such a right for a public purpose requires the payment of
just compensation. Cf. Williams v. City of Wichita, 109 Kan. 317, 374
P.2d 578 (1962) (discussing ownership of water rights).
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Inc., 2011 WL 691621, *2, n.2 (D. Kan., Feb. 15, 2011) (discussing
prospective operation of Union Gas rule). In fact, this court
previously stated that under Kansas law Northern retained title to
any storage gas migrating to the Extension Area after the June 2,
2010 FERC certificate. (See e.g., Doc. 187 at 8). Notwithstanding
this prior dicta, the court now concludes from its review of Kansas
law that even a prospective application of Union Gas has been
effectively superseded by K.S.A. § 55-1210 and impliedly modified
by Martin, Pringle and ONEOK.
As defendants point out, Union Gas seemingly assumed that the
landowners did not have any vested property interest in migrated
storage gas under their property because that gas was subject to
the rule of capture. See Union Gas, 245 Kan. at 791 (“Crossappellants’ qualified interest in the gas beneath the DeTar
property is perfected only by capture.”). That premise is untenable
after Martin, Pringle and ONEOK, which make clear that under §551210, Kansas landowners beyond “adjoining property” hold a present
vested interest in any storage gas under their land. ONEOK observed
that § 55-1210 was adopted “in response to the common law as it had
developed in Union Gas and Anderson,” suggesting that the statute
was designed to supplant those cases to the extent they were
inconsistent with the new statutory rules of ownership.
It is true that § 55-1210 did not expressly address the impact
of a regulatory certificate on ownership of migrating storage gas.

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But ONEOK’s conclusion that §55-1210 grants the injector an
ownership interest in storage gas only within the confines of a
certified storage field, plus the adjoining property, was itself
conditioned upon an understanding that the injector’s storage
rights in that certified area “were acquired” by eminent domain or
otherwise. ONEOK, 296 Kan. at 926. In other words, the injector’s
ownership rights to storage gas are limited to the certified area
where the injector has already obtained the necessary storage
rights, augmented only to the extent of the “adjoining property.”
Cf. §55-1210(c) (governing ownership of storage gas that has
migrated to adjoining property “which has not been condemned ... or
otherwise purchased”). Insofar as Union Gas would allow an injector
to claim ownership of storage gas migrating beyond that limited
area, into a more distant area where the injector does not yet have
storage rights but has only obtained a certificate to condemn the
necessary rights, the court concludes that such a rule implicitly
conflicts with and is superseded by K.S.A. § 55-1210’s scheme for
ownership of migrated storage gas, as construed by the Kansas
Supreme Court. Cf. City of Haven v. Gregg, 244 Kan. 117, 122-23,
766 P.2d 143 (1988) (when a statute conflicts with the common law,
the statute controls). See also Martin, Pringle, 289 Kan. at 791
(the landowners “possessed the legal right to produce and keep the
injected gas which had migrated onto their property, unless and
until Northern obtained a certificate to expand its storage area

-24-

onto their land and paid them for that privilege through a
condemnation action.”) (emphasis added).
In sum, the court concludes that the issuance of a regulatory
certificate from FERC works no instantaneous change of ownership in
storage gas under Kansas law. Rather, ownership rights are
determined by K.S.A. § 55-1210. And under that statute, an
injector’s right to retain title to its injected storage gas is
limited to the certified area where it has already obtained the
necessary storage rights and to the adjoining property.
Northern’s reliance on the balance of the Kansas Storage Act,
including §§ 55-1204 and 55-1205, does not alter this conclusion.
For reasons previously alluded to, § 55-1205 cannot relieve
Northern of its obligation to pay just compensation for the taking
of defendants’ property rights to storage gas. Although § 55-1205
only directs appraisers to consider “the amounts of recoverable oil
and native gas” in the property to be acquired, that limited
inquiry is due to the fact that this provision "was intended to
operate prior to the injection and storage of gas by a natural gas
public utility." Union Gas, 245 Kan. at 89. Prior to establishment
of a storage field there obviously would be no storage gas to
consider. But when a condemnation instead involves the taking of a
landowner’s rights to capture both native and storage gas, as it
does here, the constitution requires the condemnor to pay just
compensation for the taking of both.

-25-

The court notes that all of the foregoing pertains only to the
question of who had title to storage gas in the Extension Area on
the date of taking. Insofar as the ultimate question of just
compensation is concerned, the Commission will have to factor in a
number of variables, including whether or not such gas was
economically recoverable. See e.g., Union Gas, 245 Kan. at 92-94.
The relevant considerations will be covered in the court’s ultimate
instructions to the Commission.
G. Northern claim for offset.
Northern also seeks a ruling that it is entitled to an offset
against the condemnation award for: (1) the value of any and all
storage gas produced on or after October 30, 2008 from the 2008
Extension Area; and (2) the value of any and all storage gas
produced on or after June 2, 2010, from the 2010 Extension Area.
(Doc. 678 at 16).
With respect to the 2008 Extension Area, the court has no idea
what production Northern is referring to, because no such facts are
set forth in the parties’ statements of fact, nor is any such
production mentioned in the briefs. (As noted previously, the only
portion of the 2008 Extension Area involved in this condemnation is
a 7.87 acre tract, Tract No. 3152711, in Pratt County). The court
will deny the request for summary judgment on this issue as
factually unsupported. On this record the court is not even certain
that there is a live controversy concerning production from the

-26-

2008 Extension Area.
With respect to the 2010 Extension Area, the court will deny
Northern’s motion for the reasons discussed previously. The court
concludes that Union Gas has been superseded or modified insofar as
it held that a regulatory certificate gives an injector title to
migrating storage gas. The issuance of the 2010 FERC certificate,
standing alone, affected no change in ownership of migrating
storage gas to the 2010 Extension Area. Northern has shown no
entitlement to an offset for production from the 2010 Extension
Area after June 2, 2010.
V. Conclusion.
Northern’s Second Motion for Partial Summary Judgment (Doc.
677) is DENIED. Defendants’ Cross-Motions for Partial Summary
Judgment (Docs. 699, 700, 701, 702 ) are GRANTED.
With respect to any storage gas that migrated from the
Cunningham Storage Field to the 2010 Extension Area prior to the
date of taking, the court will instruct the Commission according to
the ownership principles set forth in this order.
A motion for reconsideration of this order is not encouraged.
Any such motion shall not exceed 5 double-spaced pages and shall
strictly comply with the standards enunciated by this court in
Comeau v. Rupp, 810 F.Supp. 1172, 1174 (1992). The response to any
motion for reconsideration shall not exceed 5 double-spaced pages.
No reply shall be filed.

-27-

IT IS SO ORDERED.
Dated this 5th

day of March 2014, at Wichita, Kansas.

s/Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE

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