Takings and Mineral InterestsPosted: July 28, 2014
Regulatory restrictions on the development of mineral resources produce some of the most interesting takings issues. For instance:
On July 1, 2014, in Schmude Oil, Inc. v. Department of Environmental Quality, the Michigan Court of Appeals affirmed rejection of a takings claim filed by an oil company based on regulatory restrictions on shale oil drilling. The claim arose from a decision by the Michigan Department of Environmental Quality to deny applications to drill several wells on a private inholding within the protected Pigeon River Country State Forest. Based largely on the fact that the company could still proceed with development of the resources using horizontal drilling (albeit at greater cost), the Court rejected both a Lucas per se takings claim and a Penn Central takings claim. While the Court’s analysis is quite conventional and unsurprising, the case is worth noting because it implicitly repudiates a controversial Court of Appeals decision of 20 years ago in Miller Bros. v. Department of Natural Resources, 513 N.W.2d 217 (Mi. Ct. App.), review denied, 447 Mich. 1038 (1994). In that case, involving essentially identical facts, the Court of Appeals upheld a finding of a taking, rejecting the government’s argument that the oil company’s ability to conduct horizontal drilling should have defeated the takings claim. The Miller Bros. court reasoned, “If allowed, directional drilling could not be used to extract all the oil and gas there may be under the protected area. Consequently, the [permit denial] completely deprived plaintiffs of all use of at least some portion of their property holdings in the protected area.” The new decision in Schmude Oil plainly rejects this logic. What a difference 20 years makes.
Earlier in the spring, on April 29, 2014, in Vane Minerals v. United States, the U.S. Court of Federal Claims rejected a takings claim arising from restrictions on uranium development on federal public lands in the West. The plaintiff claimed a property right in a uranium deposit based on the 1872 Mining Act. However, the Forest Service and BLM, acting pursuant to the Federal Land Policy & Management Act, “withdrew” the lands (in the vicinity of the Grand Canyon) from mineral entry – subject to “valid existing rights.” Thus, the issue was whether the plaintiff had established a valid existing right, and hence a compensable property interest, by the time the agencies withdrew the lands from mineral entry, The court ruled that the plaintiff lacked a valid existing right because it had failed to go through the necessary agency procedures to obtain a determination that it possessed a valid exiting right. Absent such a determination, the court ruled, the takings claim failed for lack of a predicate property interest as well as on ripeness grounds.