Sullivan v BOGM

2008 UT 44
AMENDED OPINION
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
Christopher M. Sullivan, No. 20070410
Petitioner,
v.
F I L E D
Utah Board of Oil, Gas
and Mining; and Kerr-McGee Oil & July 11, 2008
Gas Onshore, LP,
Respondents.
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Original Proceeding in this Court
Attorneys: Christopher M. Sullivan, Boulder, CO, pro se
petitioner
Mark L. Shurtleff, Att’y Gen., Michael S. Johnson,
Asst. Att’y Gen., Salt Lake City, for respondent
Utah Board of Oil, Gas and Mining; Craig D. Galli,
Cecilia M. Romero, Salt Lake City, for respondent
Kerr-McGee Oil & Gas Onshore
---
PARRISH, Justice:
INTRODUCTION
¶1 In 2006, Christopher M. Sullivan filed a request for
agency action with the Utah Board of Oil, Gas and Mining (the
“Board”). Sullivan claimed to be legally entitled to a share of
the proceeds from sixteen oil and gas wells owned and operated by
Kerr-McGee Oil & Gas Onshore, LP (“KMG”). We are asked to
determine whether the Board properly denied Sullivan’s request
for agency action. Sullivan argues that the Board erred by
(1) dismissing his request without a hearing on the merits,
(2) refusing to continue the matter pending the outcome of a
parallel state court action, and (3) refusing to order that KMG
deposit the disputed proceeds in an escrow account. We find no
error and therefore affirm the Board’s denial of Sullivan’s
request for agency action.

1 Sullivan is a successor in interest to fifty percent of
the legal rights reserved by Thomas. The other fifty-percent
interest holder, B & A Properties, LLC, declined to participate
in the proceeding below and is not a party to this action.
2 “An overriding royalty is an interest running throughout
the term of the lease, while . . . [a] production payment is an
interest running only until it has yielded a specified sum of
money.” Alamo Nat’l Bank of San Antonio, Tex. v. Hurd, 485
S.W.2d 335, 338-39 (Tex. Civ. App. 1972).
No. 20070410 2
BACKGROUND
¶2 In 1970, the Bureau of Land Management awarded an oil
and gas lease to Joseph A. Thomas. In 1972, Thomas assigned the
lease to Raymond Chorney under an Assignment Affecting Record
Title to Oil and Gas Lease (the “Assignment”). As part of the
Assignment, Thomas reserved rights to certain royalty payments.
This reservation of royalty payments is the basis of the
underlying dispute between the successors in interest to the
Assignment. KMG--Chorney’s successor in interest--interprets the
Assignment as only requiring production payments, whereas
Sullivan--one of Thomas’ successors in interest1--interprets the
Assignment as requiring both production payments and overriding
royalty payments.2
¶3 The dispute between KMG and Sullivan began in February
2006, when KMG sent two letters to Sullivan declaring that, upon
review of the Assignment, KMG’s obligation had been “satisfied
and paid in full as of December 2004.” KMG stated that the
letters served as notice that it would make no further royalty
payments to Sullivan. Additionally, KMG claimed that it had
overpaid Sullivan $152,322.96 and insisted that Sullivan remit
the overpayment. In his response letter, Sullivan disagreed with
KMG’s interpretation of the Assignment. Sullivan insisted that
KMG resume the royalty payments and claimed that KMG owed him
$218,480 in unpaid production payments.
¶4 Sullivan filed a request for agency action with the
Board in July 2006. Sullivan claimed that KMG’s refusal to make
the royalty payments constituted a breach of contract, and he
requested that the Board set the matter for investigation and
negotiation. Sullivan further requested that, in the event the
matter could not be resolved after investigation and negotiation,
the Board set the matter for a hearing and, thereafter, enter an
order stating (1) that Sullivan is entitled to the proceeds,
(2) that KMG’s nonpayment of the proceeds was without reasonable
justification, (3) that KMG must pay future proceeds to Sullivan,

3 Specifically, Sullivan’s counsel stated,
My client, Mr. Sullivan, for the most part
concurs with the Division’s take on this,
that this is a matter best decided before a
court. However, we would . . . urge the
Board to require compliance with the statute
insofar as imposing a requirement that the
disputed funds be placed into escrow.
(continued...)
3 No. 20070410
and (4) that KMG must pay penalties and interest. In its
response to Sullivan’s request, KMG acknowledged the underlying
contractual dispute, but insisted that its interpretation of the
Assignment was correct and that it owed Sullivan nothing. KMG
subsequently filed a separate civil action in the Eighth District
Court in order to resolve the underlying contract dispute.
¶5 In December 2006, pursuant to a stipulation between the
parties, the Board instructed the Division of Oil, Gas and Mining
(the “Division”) to commence a sixty-day investigation and
negotiation period in accordance with Utah Code section 40-6-9(5)
(2005). The parties submitted documents and evidence in support
of their positions, which the Division reviewed. In January
2007, the Division met with the parties to hear arguments and to
facilitate negotiations, but the Division was ultimately
unsuccessful in helping the parties reach a settlement.
¶6 The Division issued its Memorandum Regarding
Investigation and Negotiations in February 2007. The Division
noted that it “is not necessarily [an] expert in the rules
governing a determination of marketable title or the right to
proceeds” and that it “relies on the courts for these
determinations.” The Division concluded that its investigation
“did not discover facts that provide a proper basis for Board
action if a hearing were held.” As a result, the Division
recommended that the Board not set the matter for a hearing and
instead allow the parties to pursue their legal remedies in the
pending state court action.
¶7 At its March 2007 meeting, the Board reviewed the
Division’s recommendation and heard arguments from the parties.
KMG urged the Board to dismiss Sullivan’s request for agency
action so that the parties could resolve their dispute in the
pending state court action. Sullivan agreed that the underlying
contractual dispute should be decided in state court, but urged
the Board to grant the limited relief of ordering KMG to deposit
the disputed funds in an interest-bearing escrow account until
the dispute was resolved.3 After hearing the parties’ arguments

3 (...continued)
Later in the meeting, Sullivan’s counsel again clarified
that the only remedy Sullivan was seeking from the Board was that
the Board require KMG to deposit the disputed royalty payments
into an escrow account.
[Board member:] [I]f I understood you
correctly, you said that Mr. Sullivan’s only
interest in this at this point is that the
disputed funds . . . be placed in an escrow
account; is that correct?
[Sullivan’s counsel:] That is correct at
this point, simply because we feel that
[KMG’s] counsel’s correct, that the ownership
issues are . . . better resolved before the
court.
No. 20070410 4
and deliberating, the Board denied Sullivan’s request that the
disputed funds be paid into escrow.
¶8 In April 2007, the Board issued its Findings of Fact,
Conclusions of Law, and Order. The Board determined that under
Utah Code section 40-6-9(6), it had the discretion to either
(1) set a hearing or (2) decline to set a hearing and allow
Sullivan to seek a remedy in court. Because the Board determined
that the contractual dispute would be better resolved in the
already-pending state court action, the Board declined to set a
hearing, thereby allowing the parties to resolve their conflict
in court. In short, the Board denied Sullivan’s request for
agency action.
¶9 Sullivan filed a petition for review with this court.
We have jurisdiction pursuant to Utah Code section 78A-3-
102(3)(e)(iv) (2008).
STANDARD OF REVIEW
¶10 We will grant relief “only if, on the basis of the
agency’s record . . . [the] person seeking judicial review has
been substantially prejudiced.” Utah Code Ann. § 63-46b-16(4)
(2004). We review an administrative agency’s “interpretation of
its statutorily granted powers and authority as a question of
law, with no deference to the agency’s view of the law.” Bevans
v. Indus. Comm’n, 790 P.2d 573, 576 (Utah Ct. App. 1990); see
also Bennion v. Graham Res., Inc., 849 P.2d 569, 570 (Utah 1993)
(“[W]e review the Board’s interpretation of the applicable
statutes for correctness and give its view on the matter no
particular deference.”). “Issues of legal discretion may be
challenged only by showing that ‘the agency action is . . . an

5 No. 20070410
abuse of the discretion delegated to the agency by statute.’”
WWC Holding Co. v. Pub. Serv. Comm’n, 2002 UT 23, ¶ 8, 44 P.3d
714 (quoting Utah Code Ann. § 63-46b-16(4)(h)(i) (1997)). “‘An
agency has abused its discretion when the agency's action, viewed
in the context of the language and purpose of the governing
statute, is unreasonable.’” Id. (quoting Morton Int’l, Inc. v.
Auditing Div. of the Utah State Tax Comm’n, 814 P.2d 581, 587
(Utah 1991)).
ANALYSIS
¶11 Sullivan argues that the Board erred by (1) dismissing
his request for agency action without holding a hearing on the
merits, (2) refusing to continue the matter pending the outcome
of the parallel state court action, and (3) refusing to order KMG
to deposit the disputed funds in an escrow account. Because
Sullivan waived his hearing request and failed to ask for a
continuance before the Board, we do not reach his substantive
arguments on the first two assignments of error. As to the third
assignment of error, we determine that although the Board
generally has discretion to order a payor to deposit disputed
proceeds into escrow, the Board did not have that discretion
under the facts of this case.
I. SULLIVAN WAIVED HIS REQUEST FOR A HEARING
¶12 We recently reiterated the general rule that “‘one who
acquiesces in a judgment cannot later attack it.’” Gardner v.
Bd. of County Comm’rs, 2008 UT 6, ¶ 46, 178 P.3d 893 (quoting
Trees v. Lewis, 738 P.2d 612, 613 (Utah 1987)). In Gardner, the
district court issued a decision on cross-motions for summary
judgment, which disposed of all but four issues. Id. ¶ 44. The
county then moved for summary judgment on the remaining issues,
and counsel for the opposing landowners asked the court to rule
against his clients. Id. ¶ 45. The court acquiesced by granting
the County’s motion for summary judgment, thereby dismissing with
prejudice the remaining claims. Id. We held that counsel’s
acquiescence in the dismissal of the four issues constituted a
waiver of the right to appeal those issues. Id. ¶ 47.
¶13 At the March 2007 Board meeting, Sullivan’s counsel
acquiesced in the Division’s recommendation that the Board deny a
hearing and allow the parties to resolve the contractual dispute
in the pending state court action. Indeed, Sullivan’s counsel
told the Board that the only remedy Sullivan was seeking from the
Board was that KMG be required to deposit the disputed funds into
escrow. Because Sullivan acquiesced in the Board’s decision to
deny a hearing, he thereby waived his right to petition this
court for review of that decision.

No. 20070410 6
II. SULLIVAN FAILED TO ASK FOR A CONTINUANCE BEFORE THE BOARD
¶14 “We have consistently held that issues not raised in
proceedings before administrative agencies are not subject to
judicial review except in exceptional circumstances.” Brown &
Root Indus. Serv. v. Indus. Comm’n, 947 P.2d 671, 677 (Utah
1997). “The rationale is that by raising an issue at the
administrative level . . . [the administrative agency] ‘could
have adjudicated the issue.’” Whitear v. Labor Comm’n, 973 P.2d
982, 985 (Utah Ct. App. 1998) (quoting Pease v. Indus. Comm’n,
694 P.2d 613, 616 (Utah 1984)).
¶15 The only mention of a continuance in the record of the
proceedings before the agency is contained in Sullivan’s
unsolicited “Response to Division’s Memorandum.” However,
Sullivan’s request for continuance was that the Board not
consider the matter at its February 2007 meeting and instead
continue the matter until its March 2007 meeting. At the
February meeting, the Board granted Sullivan’s request and voted
to continue the matter until the March meeting. At the March
meeting, Sullivan’s counsel told the Board that the only remedy
Sullivan was seeking was that the Board require KMG to deposit
the disputed funds in an escrow account. At no point during the
meeting did Sullivan request that the Board continue the matter
pending the resolution of the state court action. Because
Sullivan failed to request a continuance before the Board, he is
precluded from raising the issue before this court.
¶16 Additionally, even if Sullivan had requested a
continuance and the Board had denied the request, Sullivan has
failed to show substantial prejudice. See Utah Code Ann. § 63-
46b-16(4) (2004). We see nothing in the relevant statute that
would prevent Sullivan from again requesting agency action once
the underlying contractual dispute is resolved in state court.
In other words, assuming Sullivan were to prevail in the state
court action and the court were to order KMG to pay the disputed
royalty payments to Sullivan, Sullivan could file another request
for agency action. In his request, Sullivan could ask for a
hearing in which the Board could decide whether he is entitled to
the statutorily authorized rate of interest on the disputed funds
that KMG did not place in an escrow account and whether KMG’s
delay of payment was without reasonable justification, thereby
entitling Sullivan to a penalty imposed upon KMG. See id. § 40-
6-9(4)-(7) (2005). Because Sullivan is not prohibited from
returning to the Board following the resolution of the underlying
contract dispute, the Board’s failure to continue the matter
pending resolution of the state court lawsuit did not
substantially prejudice Sullivan.

7 No. 20070410
¶17 In sum, because Sullivan failed to ask for a
continuance and has not demonstrated substantial prejudice, we do
not reach the issue of whether Sullivan was entitled to a
continuance.
III. THE BOARD COULD NOT HAVE EXERCISED ITS DISCRETION TO ORDER
KMG TO DEPOSIT THE DISPUTED PROCEEDS INTO ESCROW
¶18 Sullivan also alleges that the Board erred in not
requiring KMG to deposit the disputed proceeds into an escrow
account. At the March 2007 Board meeting, the sole remedy sought
by Sullivan was for the Board to issue an order forcing KMG to
deposit the disputed funds into an escrow account pending
resolution of the state court action. Ultimately, the Board
declined to issue the order.
¶19 On appeal, one of the Board’s principal arguments is
that, under the plain language of the royalty statute, it does
not have the power to force a payor to deposit disputed proceeds
into an escrow account. In support of this argument, the Board
cites subsection (7) of Utah Code section 40-6-9, which provides
that if a payor has not deposited the proceeds into escrow, the
available remedies are interest and penalties. See Utah Code
Ann. § 40-6-9(7)(a)(ii) (2005) (providing that the Board may
require the payor to pay interest “as a substitute for an escrow
account interest rate”). The Board argues that placing funds
into an escrow account is an “input” into the Board’s decision-
making process rather than an “output.” In other words, the
Board is to consider whether the funds have been deposited into
escrow when deciding whether to assess interest and/or penalties,
but the Board cannot require a payor to deposit disputed funds
into an escrow account.
¶20 The arguments before the Board and before this court
focused on whether section 40-6-9, which specifically addresses
royalties, authorized the Board to order KMG to deposit the
disputed funds into escrow. We agree with the Board that this
section does not authorize it to order an escrow. However, the
parties failed to focus on another statute that does authorize
the Board to force escrow. Under section 40-6-11, which
addresses the Board’s enforcement powers generally, “[w]henever
it appears that any person is violating any provision of this
chapter . . . the board may issue an order requiring compliance
within a period not to exceed 30 days.” Id. § 40-6-11(3)(a)
(emphases added). This statute is clearly broad enough to
empower the Board to issue an order requiring a payor to comply
with the requirements of section 40-6-9(3)(b) by depositing
accrued proceeds into an escrow account. Thus, we conclude that

No. 20070410 8
the Board does have the discretion to force a payor to deposit
accrued payments into escrow.
¶21 Nevertheless, under the facts of this case, we
determine that the Board did not have the discretion to force KMG
to deposit the disputed funds into escrow. Under section 40-6-
9(3), “[i]f accrued payments cannot be made within the time
limits . . . the payor shall deposit all oil and gas proceeds
credited to the eventual oil and gas proceeds owner to an escrow
account . . . .” Id. § 40-6-9(3)(b)(i) (emphases added). Under
section 40-6-11, “[w]henever it appears that any person is
violating any provision of this chapter . . . the board may issue
an order requiring compliance . . . .” Id. § 40-6-11(3)(a)
(emphases added). Under this statute, it must first “appear”
that a provision is being violated before the Board can exercise
its discretion in deciding whether to issue an order compelling
compliance. Thus, in this case, before the Board could determine
whether to grant Sullivan’s request and issue the order requiring
that KMG deposit the money into escrow, it must have “appeared”
that KMG was violating section 40-6-9(3). In other words, it
must have appeared that there were “accrued payments” and that
there was an “eventual oil and gas proceeds owner.” Id. § 40-6-
9(3)(b)(i).
¶22 It is undisputed, however, that there was a legitimate
contractual dispute regarding whether KMG owed any royalty
proceeds to Sullivan. If KMG’s interpretation of the Assignment
was correct, there were neither accrued payments nor an eventual
oil and gas proceeds owner. On the other hand, if Sullivan’s
interpretation of the Agreement was correct, there were accrued
payments and he was the oil and gas proceeds owner. Based on the
Division’s memorandum submitted to the Board, it is clear that
the Division was not able to resolve the contractual claim and
was, therefore, uncertain as to whether there were accrued
payments at issue. The Division, KMG, and Sullivan all agreed
that the underlying contractual dispute was best resolved in the
state court action. As a result, there were no substantive
arguments before the Board regarding whether there were accrued
payments to which Sullivan was entitled. Because the Board was
presented with no evidence from either Sullivan or KMG regarding
the core issues--whether there were accrued payments and whether
Sullivan was the proceeds owner entitled to any such payments--it
could not have “appeared” to the Board that KMG was violating
section 40-6-9(3). Because it could not have appeared that KMG
was violating the statute, the Board could not have proceeded to
the next step of exercising its discretion in deciding whether to
issue an order requiring KMG’s compliance with the statute. We
therefore affirm the Board’s decision to refuse to issue such an
order.

9 No. 20070410
CONCLUSION
¶23 The Board correctly denied Sullivan’s request for
agency action. Affirmed.
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¶24 Chief Justice Durham, Associate Chief Justice Durrant,
Justice Wilkins, and Justice Nehring concur in Justice Parrish’s
opinion.