Finite Resources, Ltd. v. DTE Methane Resources, LLC ( 2022 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-1512
FINITE RESOURCES, LTD.,
SOUTHERN CROSS ENERGY, LLC,
and DURANGO GROUP, INC.,
Plaintiffs-Appellants,
v.
DTE METHANE RESOURCES, LLC and
KEYROCK ENERGY, LLC,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Southern District of Illinois.
No. 3:19-CV-00802-SMY — Staci M. Yandle, Judge.
____________________
ARGUED NOVEMBER 8, 2021 — DECIDED AUGUST 11, 2022
____________________
Before SCUDDER, KIRSCH, and JACKSON-AKIWUMI, Circuit
Judges.
JACKSON-AKIWUMI, Circuit Judge. The question in this case
is whether the doctrine of correlative rights prohibits defend-
ants from using a vacuum pump to extract coal mine methane
from their property. Plaintiffs Finite Resources, Ltd., Southern
2 No. 21-1512
Cross Energy, LLC, and Durango Group, Inc. (collectively,
“Finite”) take the position that it does, so they sued Defend-
ants DTE Methane Resources LLC and Keyrock Energy LLC
for using a vacuum pump to extract valuable gas from de-
fendants’ property, which abuts Finite’s property. The district
court concluded that under the rule of capture, Finite did not
own the gas, which could not be owned until extracted. Be-
cause Finite’s claims depended on ownership of the gas, the
district court granted summary judgment for defendants. Fi-
nite appeals, arguing that the doctrine of correlative rights ne-
gates the rule of capture and prohibits the use of a vacuum
pump. To the extent Illinois law is not clear on this issue, Fi-
nite asks us to certify the question to the Illinois Supreme
Court. We decline to certify the question and affirm.
I
Finite is the majority owner of the Orient #1 Mine, an aban-
doned coal mine in Franklin County, Illinois. It owns 90.9% of
the property, while the other 9.1% belongs to the Royal Talon
Company. In 2004, DTE acquired a lease and interest in the
Orient #1 Mine for the purpose of extracting coal mine me-
thane from its section of the property. Coal mine methane is
gas released from the coal and surrounding strata due to min-
ing activities. Once treated as a safety hazard, coal mine me-
thane is now considered a commercially valuable resource.
To extract coal mine methane from the property, DTE
drilled two wells on its section of the Orient #1 Mine and, in
2007, obtained a vacuum permit from the Illinois Department
of Natural Resources. The permit allowed DTE to use a vac-
uum pump to assist in extracting coal mine methane from the
wells. DTE used a vacuum pump until 2012, and then as-
signed its operations to Keyrock.
No. 21-1512 3
For more than ten years, Finite was unaware that defend-
ants obtained a vacuum permit to extract coal mine methane
from the wells on the property. Finite discovered defendants’
use in 2018, after a shut-in test revealed that coal mine me-
thane had been drained extensively from the Orient # 1 Mine.
At first, Finite petitioned the IDNR for compulsory unitiza-
tion, 1 seeking to unitize the parties’ properties and to require
Keyrock to ratably share their coal mine methane production
with Finite. But the IDNR denied Finite’s request. So Finite
sued defendants in state court alleging conversion, trespass,
accounting, and common law unitization. Finite also sought
to enjoin defendants from using a vacuum pump to extract
coal mine methane from the mine.
Defendants removed the case to federal court, where the
district court granted summary judgment in favor of defend-
ants. At summary judgment, the district court determined
that, under the rule of capture, Finite was not the owner of the
coal mine methane, which could not be owned until extracted.
The district court explained that this rule applied regardless
of whether extraction occurred by means of a vacuum pump.
Because Finite’s claims hinged on ownership, the district
court concluded that the rule of capture foreclosed Finite’s
trespass, conversion, and accounting claims, as well as injunc-
tive and declaratory relief. The district court also granted
summary judgment to defendants on Finite’s common law
1 Unitization is “[t]he collection of producing wells over a reservoir for
joint operations such as enhanced-recovery techniques.” Black’s Law Dic-
tionary (11th ed. 2019). It is typically carried out after primary production
starts to fall off substantially to permit efficient secondary recovery oper-
ations. Id. And it is done to comply with well-spacing requirements set
forth by state law or regulation. Id.
4 No. 21-1512
unitization claim because the IDNR previously denied Fi-
nite’s petition for unitization. This appeal followed.
II
We review de novo a district court’s ruling on a motion for
summary judgment. Flexible Steel Lacing Co. v. Conveyor Acces-
sories, Inc., 955 F.3d 632, 643 (7th Cir. 2020). Summary judg-
ment is appropriate when “there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a
matter of law.” FED. R. CIV. P. 56(a).
This case concerns two core principles of oil and gas law—
the rule of capture and correlative rights. The rule of capture,
which governs the ownership of natural resources including
gas, provides that “gas that migrates from one property to an-
other is subject to recovery and possession by the holder of
the gas estate on the property to which the gas migrates.”
Cont’l Res. of Illinois, Inc. v. Illinois Methane, LLC, 364 Ill. App.
3d 691, 694 (5th Dist. 2006); see also Brown v. Spilman, 155 U.S.
665, 670 (1895). Stated simply, the first to “capture” the gas
becomes the owner of the gas. See 3 JOYCE PALOMAR, PATTON
AND PALOMAR ON LAND TITLES § 730.3 (3d ed. 2003). The rule
of capture permits an owner to extract gas from the owner’s
land, even if the oil and gas migrated from a neighboring
tract, and even when extraction depletes a single pool or gas
reservoirs lying beneath adjoining lands. See Briggs v. South-
western Energy Production Co., 224 A.3d 334, 337 (Pa. 2020).
Because the rule of capture allows an owner to extract gas
from their property without restraint, it limits the “correla-
tive” rights of neighboring owners. That’s where the doctrine
of correlative rights comes in. The doctrine of correlative
rights protects adjoining landowners by permitting them to
No. 21-1512 5
“go and do likewise.” Williams and Meyers, Oil and Gas Law,
4th ed., (1990) §204.4; see also Stephens County v. Mid-Kansas
Oil & Gas Co., 113 Tex. 160, 167 (1923) (“[i]f the owners of ad-
jacent lands have the right to appropriate, without liability,
the gas and oil underlying their neighbor’s land, then their
neighbor has the correlative right to appropriate, through like
methods of drainage, the gas and oil underlying the tracts ad-
jacent to his own”). This means that “a mineral interest owner
[has] an opportunity to produce his ‘fair share’” of minerals
beneath the land. Texas Producing, Inc. v. Fortson Oil Co., 798
S.W.2d 622, 624 (Tex. App. 1990). But, as relevant here, the
doctrine of correlative rights also imposes a duty on owners
not to waste natural resources intentionally or negligently as
to injure their neighbor. See 58 C.J.S. Mines and Minerals § 181
(“[o]ne owner may not waste the product to the injury of a
neighbor … and has no right to waste, spoil, damage, or ma-
liciously deplete the common source of supply or do anything
that deprives another of a reasonable opportunity to extract
his or her fair share of the deposit”).
On appeal, Finite does not dispute that the rule of capture
governs coal mine methane. They insist that they “do not
claim absolute ownership rights in [the] coal mine[’s] gas.”
Rather, Finite argues that the defendants’ use of a vacuum
pump violates their correlative rights because it causes dam-
age or waste. Therefore, Finite reasons, they should be able to
proceed on their trespass claim. But we find no support for
this contention.
To begin, the IDNR—the state agency tasked with regulat-
ing oil and gas—specifically issued a vacuum permit to de-
fendants. Before issuing a permit, the IDNR considers an
owners’ correlative rights. 62 Ill. Admin. Code § 240.1050. If
6 No. 21-1512
the IDNR later determines that a permit violates an owners’
correlative rights, or causes damage or waste to property, the
IDNR may revoke a permit. Id. Defendants have maintained
their vacuum permit for more than a decade, and the record
indicates that they have never been sanctioned or had their
permit revoked. Although Finite argued before the district
court that defendants illegally used a vacuum pump without
a permit, Finite made clear during oral argument that they do
not allege that defendants’ use of the vacuum pump violated
law or regulation (which both parties agree would negate the
rule of capture). Absent illegality, the IDNR’s issuance of the
permit alone suggests that defendants’ use of the vacuum
pump to extract coal mine methane from their property did
not violate Finite’s correlative rights or otherwise intention-
ally cause damage and waste.
Moreover, the limited authority to address this question
suggests that the use of a vacuum pump to extract gas from
the property is permitted and does not negate the rule of cap-
ture. See, e.g., Briggs, 224 A.3d at 337 (citations omitted) (“rule
of capture applies even where devices such as pumps are
used to bring the mineral to the surface and thereby reduce
the production of neighboring wells”); Coastal Oil & Gas Corp.
v. Garza Energy Trust, 268 S.W.3d 1, 13 (Tex. 2008) (“[an
owner] may use hydraulic fracturing to stimulate production
from his own wells and drain the gas to his own property”);
Williams and Meyers, Oil and Gas Law, 4th ed., (1990) §204.4
(under the rule of capture, the owner of a tract of land, no
matter how small, “may by means of a compression or vac-
uum pump increase the production from his well though the
result may be to drain his neighbor’s property”). Finite has
not identified any binding, or even persuasive, authority that
calls this proposition into question. To the contrary, no court
No. 21-1512 7
has held that correlative rights prevent the use of a vacuum
pump, or that the use of the vacuum pump negates the rule
of capture.
Instead, Finite argues that, to the extent it is unclear
whether the doctrine of correlative rights in Illinois prohibits
the use of a vacuum pump in coal mine voids, our court
should certify the question to the Illinois Supreme Court. Fed-
eral courts may ascertain the content of state substantive law
while sitting in diversity, but we sometimes certify a question
of state law based on several factors. Those factors include
whether the case concerns a matter of vital public concern,
whether the issue in the case is likely to recur in other cases,
whether the question to be certified is outcome determinative
of the case, and whether the state supreme court has yet to
have an opportunity to illuminate a clear path on the issue.
See Vill. of Bedford Park v. Expedia, Inc., 876 F.3d 296, 302 (7th
Cir. 2017); see also Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630(7th Cir. 2002) (identifying additional factors). The most im-
portant factor, however, is whether we feel genuinely uncer-
tain about an issue of state law. State Farm Mut. Auto. Ins. Co.
v. Pate, 275 F.3d 666, 672 (7th Cir. 2001).
We acknowledge that the Illinois Supreme Court has not
yet ruled on the issue of vacuum pumps and correlative
rights, but after considering the above factors, we do not find
that this is a proper case for certification. Given the limited
authority on this topic and the IDNR’s regulation of the oil
and gas industry, including the issuance of vacuum permits,
we doubt the issue in this case is likely to recur. Finite also has
not shown how certification would be outcome determina-
tive. See Allstate, 285 F.3d at 639 (explaining that fact specific
issues, as well as issues upon which there is no serious doubt
8 No. 21-1512
or issues that are not dispositive of the case, are not candi-
dates for certification). Finite raised claims such as trespass
that depend on possession of coal mine methane. Finite con-
ceded that they do not claim absolute ownership of the gas in
this case, and the doctrine of correlative rights does not grant
Finite the ownership rights that they need to sustain any of
their claims. And although Finite argues that the doctrine of
correlative rights purportedly prevents the use of a vacuum
pump and therefore negates the rule of capture, the IDNR’s
actions and other sources suggest otherwise. We therefore
have no serious doubt about the answer to the question. Fi-
nite’s request to certify is denied.
III
In sum, the rule of capture controls and the doctrine of cor-
relative rights does not prevent the use of vacuum pumps or
otherwise vitiate the application of the rule in this case. We
decline to certify to the Illinois Supreme Court a question
about whether the doctrine of correlative rights prevents the
use of a vacuum pump. Accordingly, we AFFIRM the district
court’s judgment.