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All American Oilfield, LLC v. Cook Inlet Energy, LLC

Supreme Court of Alaska

August 9, 2019

ALL AMERICAN OILFIELD, LLC, Plaintiff and Appellant,
v.
COOK INLET ENERGY, LLC, Defendant and Appellee. IN RE: COOK INLET ENERGY, LLC, Debtor, CHARLES GEBHARDT, TRUSTEE FOR THE MILLER ENERGY RESOURCES CREDITORS' LIQUIDATION TRUST, Plaintiff,
v.
CAROL INMAN, d/b/a STARICHKOF ENTERPRISES, Defendant.

          Certified Questions from the United States District Court No. 3:17-cv-00127-SLG for the District of Alaska, Sharon Gleason, Judge, and the United States Bankruptcy Court Bankruptcy Adv. Nos. 16-90002-GS, 17-90041-GS, Bankruptcy No. 15-00236-GS for the District of Alaska, Gary Spraker, Judge.

          Michael A. Grisham, Dorsey & Whitney LLP, Anchorage, for All American Oilfield.

          Cabot Christianson, Law Offices of Cabot Christianson, Anchorage, for Carol Inman.

          Elena Romerdahl, Perkins Coie LLP, Anchorage, and David A. Zdunkewicz, Hunton Andrews Kurth LLP, Houston, Texas, for Cook Inlet Energy, LLC.

          Kevin G. Clarkson, Brena, Bell & Clarkson, P.C., Anchorage, and Aaron M. Guerrero and Carolyn Carollo, Snow Spence Green LLP, Houston, Texas, for Charles Gebhardt, Trustee.

          Laura Fox, Assistant Attorney General, Anchorage, and Jahna Lindemuth, Attorney General, Juneau, for Amicus Curiae State of Alaska.

          Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.

          OPINION

          WINFREE, JUSTICE.

         I. INTRODUCTION

         In 1910 the United States Congress passed Alaska's first mineral dump lien statute, granting laborers a lien against a "dump or mass" of hard-rock minerals for their work creating the dump. After piecemeal revisions, Alaska's 1933 territorial legislature amended the dump lien statute to include oil and gas development, creating a framework for technological advances in the state's nascent oil and gas industries. The mineral dump lien statute has remained substantively unchanged since, and we have infrequently addressed it.

         We accepted certified questions from both the United States District Court and the United States Bankruptcy Court regarding the scope of the mineral dump lien statute as applied to natural gas development. For the reasons that follow, we conclude that the statutory definition of "dump or mass" reflects that a mineral dump lien may extend only to gas extracted from its natural reservoir, that the lien may cover produced gas contained in a pipeline if certain conditions are met, and that to obtain a dump lien laborers must demonstrate that their work aided, broadly, in gas production.

         II. FACTS AND PROCEEDINGS

         A. All American v. Cook Inlet

         The relevant facts of this case are not in dispute.[1] Cook Inlet Energy, LLC operates oil and gas wells in southcentral Alaska. In November 2014 Cook Inlet contracted with All American Oilfield, LLC to "drill, complete, engineer and/or explore three wells" on Cook Inlet's oil and gas leaseholds. All American began work soon thereafter, including drilling rig operations, digging holes, casing, and completing the gas wells. When All American concluded its work the following summer, Cook Inlet was unable to pay. In June 2015 All American recorded liens against Cook Inlet, including a mine lien under AS 34.35.125 and a mineral dump lien under AS 34.35.140. In October, after its creditors filed an involuntary petition for relief, Cook Inlet consented to Chapter 11 bankruptcy proceedings.

         In January 2016 All American filed an adversary proceeding in the bankruptcy court "to determine the validity and priority of its secured claims." The bankruptcy court found that All American has a valid mine lien against the three wells.[2]But the court denied All American's asserted mineral dump lien against unextracted gas remaining in natural reservoirs.[3] The court also concluded that All American's mine lien is subordinate to Cook Inlet's secured creditors' prior liens, which would consume all of Cook Inlet's assets and leave All American with nothing.[4] All American appealed to the federal district court, which, in turn, certified to us questions regarding the Alaska mineral dump lien statute.

         B. Charles Gebhardt v. Carol Inman

         Carol Inman, d/b/a Starichkof Enterprises, provided equipment, labor, and services to Cook Inlet. Charles Gebhardt, the appointed trustee for Cook Inlet's liquidation trust, [5] sued Inman to recover payments Cook Inlet made to her before the bankruptcy. In October 2017 Gebhardt filed a motion for partial summary judgment, asserting that there was no genuine issue of material fact that the payments to Inman were avoidable preferred payments.[6] Inman opposed the motion, asserting an inchoate lien defense. Inman had not recorded a mineral dump lien; she asserted that, had she not been paid for her work, she could have recorded a valid mineral dump lien that would have attached to property valued in excess of the amount she was owed. She contended that this inchoate lien constituted a complete defense to the trustee's attempt to avoid the payments made to her before the bankruptcy.

         Inman filed a motion to certify to us the questions interpreting the mineral dump lien in her case, which the bankruptcy court granted.

         C. The Certified Questions

         We accepted the following certified questions:

1. Can a "dump lien" under AS 34.35.125 et seq. apply to gas stored in its natural reservoir; if so, was a mineral "dump" created under AS 34.35.140 and AS 34.35.170(1) when All American drilled three natural gas wells at the request of Cook Inlet?
2. Is a mineral "dump" created under AS 34.35.140 and AS 34.35.70(a)(1) each time that Cook Inlet releases natural gas from the natural reservoir in which the gas was formed and transports that gas through a pipeline to the point of sale?
3. Must a dump lien claimant under AS 34.35.140 prove, in order to have a valid dump lien, that the produced gas was, in whole or in part, the product of her labor?[7]

         The parties provided full briefing on these issues, and the State filed an amicus brief at our request. We now hold that the answer to the first question is "no." The second question presents factual determinations we leave to the triers of fact, but we hold that gas in a pipeline may be subject to a dump lien if other conditions are satisfied. We hold that the answer to the final question is "yes."

         III. STANDARD OF REVIEW

         Appellate Rule 407(a) allows us to answer certified questions that "may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in [our] decisions." Answering certified questions requires that we "stand in the shoes of the certifying court, yet exercise our independent judgment."[8] "This entails 'selecting the rule of law that is most persuasive in light of precedent, reason, and policy.' "[9]

         IV. DISCUSSION [10]

         A. Unextracted Natural Gas Remaining In Its Natural Reservoir Cannot Constitute A "Dump" Under The Mineral Dump Lien Statute.

         1. Statutory framework

         Alaska has three statutes allowing workers to attach liens to mines, mining equipment, or minerals. Alaska Statute 34.35.125 allows a person who performs work on a mine or oil well to attach a lien to "the mine or mining claim, oil, gas, or other claim or well as security for the payment of the work." Alaska Statute 34.35.130 allows a person who performs work on a mill or machine used in a mining operation to have "a lien on the mill or machine, to secure the payment of the amount due for the work." These two statutes create preferred liens, with precedent over other liens excepting those recorded before the work resulting in the lien claim started.[11]

         Alaska Statute 34.35.140(a), at issue in this case, provides:

A person who, at the instance of another who has the right of possession of a mine, or mining claim, oil or gas well, performs upon, in, or about the mine or well any of the kinds of work mentioned in AS 34.35.125, or who performs any other kind of work in the production, piling up, or storing of a dump or mass of mineral, has a lien on the dump or mass, and the gold, gold dust, or other minerals contained in or extracted from it, to secure the amount due the laborer in the production of the minerals.

         The dump lien statute thus describes: (1) the types of work qualifying "a person" for the lien - "any of the kinds of work mentioned in [the mine lien statute], or . . . any other kind of work in the production, piling up, or storing of a dump or mass of mineral"; (2) the property to which the lien attaches - "the dump or mass, and the . . . minerals contained in or extracted from it"; and (3) the types of debts the lien satisfies - "amount[s] due the laborer in the production of the minerals."[12]

         A "dump or mass" is defined in AS 34.35.170(a)(1) as:

[M]ineral-bearing sands, gravel, earth, ore, stone, coal, oil, gas, other fluids or minerals extracted, hoisted, and raised from a mine or mining claim, while in mass at the mine or on the mining claim or adjacent to it, whether it is deposited in dumps or piles, or placed in hoppers, tanks, or reservoirs, or in sluice boxes or bunkers or other receptacles and whether partially or wholly reduced from its primary state or not. (Emphasis added.)

         A dump or mass thus must: (1) consist of specific types of matter; (2) be "extracted, hoisted, and raised from a mine or mining claim"; (3) be "in mass"; and (4) be "at the mine or on the mining claim or adjacent to it."[13]

         In contrast to the other two liens over mines and mining equipment, the dump lien created by AS 34.35.140 is "prior and preferred" over other liens, "whether given before or after the work for which the lien is claimed is started."[14] Because a dump lien has priority over other liens, [15] a bankruptcy proceeding creditor would prefer holding a dump lien to increase the creditor's chance of being paid if the bankruptcy estate is not large enough to satisfy all obligations.

         2. The dump lien statute's plain language excludes unextracted gas remaining in its natural reservoir.

         All American argues that the dump lien statute applies to unextracted gas remaining in its natural reservoir and that it gained a dump lien by drilling natural gas wells for Cook Inlet. All American's interpretation primarily relies on implied legislative history and policy arguments. We conclude that the history and policy arguments are not sufficient to overcome the statute's contrary plain language.

         The statutory framework makes clear that for a claimant to obtain a dump lien, there must be a "dump" to which the lien can attach.[16] The existence of a dump is a condition precedent to obtaining a dump lien, and we therefore strictly construe the statutory definition.[17] Under the statute's plain meaning, unextracted gas cannot constitute a dump because it was never "extracted, hoisted, and raised" as the statutory definition requires.[18]

         All American's contract contemplated that it would assist Cook Inlet with natural gas extraction, but All American's work apparently was limited to establishing natural gas wells. All American states that it "performed drilling, exploration, engineering, and other work to access the natural gas contained" in the reservoir. All American explains that it "explored, drilled, managed, and ultimately provided valuable labor in both finding the gas and creating a mechanism (the well) by which [Cook Inlet] was able to extract the gas." But the gas over which All American claims it has a dump lien was not "extracted, hoisted, and raised."[19]

         Although the certified question asks whether the dump lien applies to natural gas stored in its native reservoir, All American instead discusses whether unproduced gas that has never left its natural reservoir can be subject to a dump lien. As the State notes, although "unextracted gas may remain in its reservoir until it is produced, this is not gas storage." Gas storage specifically "requires prior production and a separate agreement with the State."[20] In other words, produced gas reinjected and stored in a natural reservoir has been "extracted, hoisted, and raised" and might qualify as a dump.

         All American contends that the words "extracted, hoisted, and raised" effectively must be ignored to satisfy the dump lien statute's purpose. But based on this plain language, because the gas for which All American drilled wells never was "extracted, hoisted, and raised" from the mine, it cannot qualify for a dump lien under AS 34.35.140. Although unextracted gas cannot constitute a dump, All American still may obtain a non-preferred mine lien under AS 34.35.125, as the definition of "mine" or "mining claim" broadly includes "all valuable mineral deposits, including coal, oil, gas, or other fluid, and all loads, veins, or rock in place containing minerals.'"[21]

         3. Neither legislative history nor case law extends the "dump" definition to include unextracted gas remaining in its natural reservoir.

         Despite a dearth of legislative history, All American argues that we should liberally interpret the dump lien statute and its accompanying definition based on AS 34.35.930's provision that the lien chapter "is remedial and its provisions shall be liberally construed." All American likens the dump lien statute to "a legal contraption that has been significantly amended through patchwork additions, but never revised" and argues that the "legislative purpose and intent of the 1933 amendments was to provide companies like [itself] with [d]ump [l]ien protection." But even before "dump" was explicitly defined, earlier versions of the dump lien statute consistently required that minerals be removed from the ground to qualify as a dump to which a dump lien could attach.

         Alaska's first dump lien statute was passed in 1910 by the United States Congress.[22] This earliest iteration granted a lien to laborers for work performed on "the dump or mass of mineral-bearing sands, gravels, earth, or rocks, and all gold and gold dust, or other minerals therein, and all gold and gold dust extracted therefrom."[23] The statute neither defined "dump" nor required that all minerals be "extracted, hoisted, and raised" from the mine itself.[24] Congressional debate from 1910 - the only existing legislative history accompanying any version of the statute - indicates that the statute sought "to extend the lien of miners greater than it is at present."[25] At that time Alaska apparently provided that every "person performing labor or furnishing material of any kind to be used in the construction, development, alteration, or repair, either in whole or in part, of any building, . . . [or] mine, . . . shall have a lien upon the same for the work or labor done."[26] But the law did not "give the miner who digs the ore or the mineral-bearing gravel out of the earth any lien at all for his labor."[27]

         Congress apparently thought it necessary for the miner to have such a lien given the "practical operations of mining in Alaska."[28] The congressional record explains:

[I]n the practical operations of mining in Alaska the mineral-bearing gravel is removed in the winter time. When the spring comes, the "dump," as it is called, is put through a process of washing out the gold and gold dust and minerals that are contained therein. It very frequently happens that the person who operates the mine is obliged to borrow considerable money as he commences to operate the mine. When spring comes, it may be that the mortgagee then forecloses his mortgage, on which he has received interest to the amount of 4 to 6 per cent a month. After his mortgage is satisfied there is nothing left to go to the miner, who has produced this dump, there being no law giving him any security for his labor.[29]

         The law did not "give [the miner] a lien upon the mine, but [rather] a lien only upon that which his labor has produced, namely, the dump, and the gold or gold dust contained therein or extracted therefrom."[30]

         Alaska's territorial district court considered the 1910 dump lien statute in Donaldson v. Henning.[31] Because the statute did not define "dump," the court looked to the term's common usage by miners: "[T]he term 'dump' usually refers to the pile or mass of gold-bearing earth or gravel hoisted from a mine, prior to the time that it has been washed and the gold and gold dust extracted therefrom."[32] Even before a statutory definition, courts and common usage defined "dump" as containing only minerals actually "hoisted from a mine."[33]

         Alaska's territorial district court again considered the dump lien statute a year later in Nordstrom v. Sivertsen-Johnsen Mining & Dredging Co.[34] Applying the 1910 version of the statute, the court looked to the dictionary definition of "dump" and found that the legislature "meant the mineral-bearing sands piled up or collected into an aggregate heap or body, and not the mineral-bearing sands or dirt that has been only loosened or broken up, but not piled up on the surface of the ground in some place."[35]

         Alaska's 1913 territorial legislature amended the dump lien statute.[36] The amended statute provided, in relevant part, that the "lien shall attach in every case to such mine, lode, mining claim, deposit, and the ore, gold bearing earth, rock, gravel, sand, gold, gold dust or other precious mineral mined, taken and extracted from such mine, lode, mining claim, deposit."[37] Although the statute did not use the term "dump," it still required that minerals be "mined, taken and extracted" from the mine to be lienable.[38]

         Alaska's 1915 territorial legislature again amended the dump lien statute.[39]This iteration reintroduced the term "dump" and separated mine liens from dump liens.[40]The dump lien attached to "the dump or mass of minerals . . . and gold or gold dust or other minerals therein."[41] Perhaps more importantly, for the first time since the lien statute's inception, the legislature explicitly defined the term "dump" and required that the materials comprising the "dump" be "extracted, hoisted, and raised from a mine."[42]The 1915 statute - like the 1913 statute - required that ...


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