HomeMy WebLinkAbout20183679 BILL OVENS
1200 17111 ST'R]EET, SUITE 2400
DENVER, CO 80202
303-685-7464
RECEIVED
November 12, 2018 NOV 1 5 2018
WELD COUNTY
COMMISSIONERS
Via Email
Weld County Board of Commissioners
c/o Esther Gesick, Clerk to the Board
1150 O Street
Greeley, CO 80631
egesick@weldgov.com
Re: Sand Hills and South Beebe Draw Metropolitan Districts
Dear Board Mem ers: C ( __U
I have had the pleasure to meet several of you over the years and some might be aware that
I am on the Board of Directors for HighPoint Resources Corporation ("HighPoint") which was
formerly Bill Barrett Corporation. Likewise, some of you might be aware of the matter about
which I write as you were serving on the Weld County Board of Commissioners when counsel for
HighPoint appeared before you in 2014 to object to taxes being imposed by Sand Hills
Metropolitan District ("Sand Hills"). Sand Hills and a related entity, South Beebe Draw
Metropolitan District ("Beebe Draw"), operate within, but without proper approval of, Weld
County. Both districts have been collecting millions of dollars in tax revenues on oil and gas
production in rural Weld County in a manner which High Point believes is injurious to Weld
County. Had those districts not collected those taxes, improperly and without County approval,
many of the tax revenues would have been sent instead to Weld County and local entities within
the County. I want to give you some background and an update as to recent developments
involving these districts because their actions have a significant detrimental impact on Weld
County and its taxpayers.
A. Overview of Sand Hills Metropolitan District
Sand Hills is a special metropolitan district located(until recently) in rural Weld County at
property referred to as 70 Ranch. Sand Hills' territorial boundaries comprised 13,000 acres of
ranch land and contained less than 10 inhabitants. Even so, commencing in 2009, Sand Hills
collected tens of millions of ad valorem tax dollars from HighPoint, Bonanza Creek Energy, Inc.
("Bonanza") and Noble Energy Company ("Noble") based on their production of oil and gas from
reserves they own or lease beneath the Ranch.
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Weld County Board of Commissioners
November 12, 2018
Page 2
Neither HighPoint nor the other oil and gas producers dispute the authority of special
districts to tax oil and gas production from mineral interests included within a special district
pursuant to Colorado's Special District Act. Without objection, HighPoint pays taxes to scores of
special districts in Weld County and elsewhere. However, HighPoint and the other producers
dispute the legitimacy of taxation by Sand Hills and Beebe Draw based on their history of failing
to comply with the Act.
B. Background and Status of Sand Hills Litigation
Sand Hills was organized in 2004 and was originally named Altamira Metropolitan District
No. 6. It was located entirely within the boundaries of the Town of Lochbuie and its original
service plan — approved by the Town — stated that the district would build infrastructure for a
residential housing subdivision within the Town's boundaries. The district sat dormant for years.
Then, through a series of maneuvers commencing in 2009, the district changed its name and
transplanted itself from Lochbuie to the isolated rural location at 70 Ranch some thirty miles away
in unincorporated Weld County.
The President of Sand Hills and the owner of 70 Ranch are the same man: Robert Lembke.
In March 2009, Mr. Lembke filed a"Petition for Inclusion of Property"with the Sand Hills Board
of Directors seeking to add his 70 Ranch property to the district. Not surprisingly, the board
approved Mr. Lembke's petition. A year later, in April 2011, Sand Hills excluded its original
territory in Lochbuie and thus the district was "transplanted" to a new location. Although Sand
Hills did not give notice to nor seek the consent of HighPoint or the other producers to include
their leasehold mineral properties within the district's new boundaries, it began levying ad valorem
taxation on their mineral production. As of the end of 2015, Sand Hills had levied and collected
more than $20 million in tax revenues from HighPoint and the other producers at 70 Ranch. Sand
Hills levied taxes at a rate of 55 mills—the statutory maximum levy and far greater than typical
levies of county governments or school districts.
In 2013, when HighPoint and the other producers discovered that they were being taxed by
a special metropolitan district in rural Weld County to purportedly fund infrastructure for a housing
subdivision in Lochbuie and other projects far removed from 70 Ranch, they challenged Sand
Hills' activities and bona fides. They pointed out that—among other things —Sand Hills'service
plan said nothing about conducting operations in rural Weld County and had not been presented
to nor approved by the Weld County Board of Commissioners as required by Colorado's Special
District Act. In response, in December 2013, Sand Hills tendered an"updated and revised"service
plan - not to Weld County but, instead, to the Board of Trustees of the Town of Lochbuie despite
the fact that no Lochbuie property or taxpayers were within the district's boundaries. Sand Hills
promised to deliver a check for $1.35 million to the Town to repair its reservoir, Lake Henry, if
the plan was approved and, over objections by Bonanza, Noble Energy and HighPoint, the Board
approved the plan in a four-to-three vote.
Weld County Board of Commissioners
November 12, 2018
Page 3
HighPoint and the other producers filed suit against Sand Hills in Weld County District
Court and in April 2015, the Court granted summary judgment in their favor. The Court declared
that Sand Hills had illegally departed from its original service plan when it relocated to 70 Ranch
and that the Town of Lochbuie lacked authority to approve the 2013 revised plan. The Court
explained that the Town was "improperly enabling taxation of property and citizens beyond its
boundaries" and that the "only legally available governing authority" that might have authorized
Sand Hills' actions was the Weld County Board of Commissioners. Accordingly, the Court held
that Sand Hills no longer had "governing authority," its actions after April 2011 were "null and
void,"and that HighPoint and the other producers were entitled to a refund of taxes. The Colorado
Court of Appeals upheld the Weld County District Court. See Bill Barrett Corp. v. Sand Hills
Metro. Dist. et. al., 411 P.3d 1086 (Colo. App. 2016), cert. denied, No. 16SC877,
2017WL3978167 (Sept. 11, 2017) ("Sand Hills Litigation").
C. Sand Hills Files for Bankruptcy
On remand, the Weld County District Court entered judgment in favor of HighPoint and
the other producers in the principal amount of approximately $20,000,000 and awarded
prejudgment interest which brought the total judgment to approximately$25,000,000. Despite the
fact that Sand Hills had represented to the Court in 2014 that it had "other sources of revenues"
with which it might ultimately satisfy any judgment, Sand Hills has less than $10 million in
monetary assets. Sand Hills has these funds only because, in 2015, the District Court ordered it to
segregate and not spend any unspent or newly collected revenues while the appeal was pending.
In April 2018, Sand Hills filed for bankruptcy and, given its insolvency, HighPoint and Bonanza
settled their judgment of $25,000,000 against Sand Hills for payment of the approximately
$10,135,000 comprised of approximately $9 million that Sand Hills had preserved pursuant to the
District Court's orders and a refund of the$1.35 million with which the district secured Lochbuie's
approval of the revised service plan, and which the Town had, prudently and in good faith,placed
in escrow pending resolution of the lawsuit.
D. Beebe Draw Takes Over Sand Hills' Taxation of Weld County Property
Within days of the Weld County District Court's 2015 decision stripping Sand Hills of
governing authority, Sand Hills approved a new petition by Mr. Lembke to transfer his 70 Ranch
property out of Sand Hills and into another special district upon whose board of directors he also
sits, i.e., Beebe Draw, whose activities and boundaries are located near Brighton and other
locations in Adams County. Although this transfer once again exposed property located in Weld
County to taxation, no notice was given to the Weld County Board of Commissioners nor to
HighPoint or the other taxpayers. Once again, HighPoint and the other producers filed suit in
Weld County — this time against Beebe Draw ("Beebe Draw Litigation") — raising many of the
same objections they had raised previously in regard to Sand Hills.
Weld County Board of Commissioners
November 12, 2018
Page 4
Preferring to litigate the dispute in Adams County rather than Weld County, Beebe Draw
succeeded in getting the case transferred and — in contrast to the Weld County District Court's
holding in the Sand Hills Litigation —the Adams County Court held that the transfer of 70 Ranch
property to Beebe Draw was legal. However,the Colorado Court of Appeals has recently reversed
the Adams County District Court with regard to a key issue, holding that HighPoint and the other
producers are likely to prevail on their claim that Beebe Draw (like Sand Hills before it) did not
secure proper approval of the revised service plan pursuant to which it has been taxing oil and gas
production at 70 Ranch since 2015.
Beebe Draw has, since 2015, collected more than $15 million in revenues from HighPoint
and other producers in Weld County. In April 2018, the Court of Appeals issued an injunction
directing the Weld County Treasurer to hold and not disburse approximately $7,000,000 in tax
revenues certified by Beebe Draw and paid that same month by the producers to the Treasurer until
the appeal is resolved. However, if Sand Hills' is any example, it appears unlikely that Beebe
Draw will be able to repay in full the $15,000,000 it previously collected from HighPoint and other
producers and taxpayers at 70 Ranch.
E. Beebe Draw Violates IGA With Weld County
A critical issue in the Beebe Draw Litigation, and one of importance to Weld County, is
the district's reliance on a December 18, 2013 "Intergovernmental Agreement" ("IGA") (copy
attached) with Weld County. Beebe Draw purports that, by virtue of this IGA, Weld County
essentially gave it blanket approval to include Weld County property —including 13,000 acres at
70 Ranch along with HighPoint and the other producers' minerals — into its boundaries without
the need for the Weld County Board of Commissioners to approve such inclusions.
In fact, the IGA permits the inclusion of property "only where the property owner has
voluntarily consented to such inclusion" and requires the district to secure the "consent of the
property owners and service users affected by"the inclusion of Weld County property. The IGA
states that if Beebe Draw includes property without the owner's permission, such inclusion would
require an amendment to its service plan which amendment must be approved by the Weld County
Board of Commissioners. HighPoint and the other producers own their mineral leases and these
leasehold rights are "real property" under settled Colorado law. Moreover, HighPoint and other
producers are putative"service users" and are clearly"affected"by the inclusion inasmuch as they
have paid millions in tax revenues to Beebe Draw. Despite this, in contravention of the IGA,
Beebe draw did not solicit the producers' consent, nor did it give them notice that it would include
their property within its boundaries. Accordingly, per the IGA, Beebe Draw's actions are
tantamount to a "material modification" of its service plan which modifications require approval
by the Weld County Board of Commissioners.
Weld County Board of Commissioners
November 12, 2018
Page 5
It is our understanding that the IGA was intended as a pre-approval of an anticipated
petition by an entity called Highland Equities, LLC to include less than 2 acres it owned within
Beebe Draw,rather than the subsequent inclusion of 13,000 acres of land 70 Ranch which occurred
several weeks later. It is telling that Beebe Draw gave notice to the Weld County Attorney of the
minor inclusion of Highland Equities property yet, upon belief, gave no notice of the inclusion,
three weeks later, of the 70 Ranch property.
Indeed, Beebe Draw takes the position that, having included the Highlands Equities
property in April 2015, it need not henceforth obtain approval to include any additional Weld
County property within its boundaries. The argument is based on language in C.R.S. § 32-1-
207(2)(a) stating that "inclusion of property that is located in a county...with no other territory
within the special district may constitute a material modification" that the county board of
commissioners must consider." From this language, Beebe Draw argues that if a county already
has property within a special district, it need not thereafter consent to the inclusion of any
additional property.
Confusingly, the Court of Appeals agreed with this analysis and ruled in the Beebe Draw
Litigation that because Beebe Draw's boundaries already included property located in Weld
County,no further permission from the County was required to include the 70 Ranch property. At
the same time, however, the Court ruled that Beebe Draw's revised 2013 Service Plan—pursuant
to which it undertook to include and provide services at 70 Ranch—was a"material modification"
of its original service plan for which it did not secure appropriate approval from Adams County as
required.1 At this point, if Beebe Draw seeks to obtain proper approval of its service plan in the
wake of the Court of Appeals decision, it will need to obtain approval from Weld County as well.
See 32-1-201(1)("The board of county commissioners of each county which has territory included
within the proposed special district...shall constitute the approving authority under this part 2").
Notably,the Court declined to decide whether Beebe Draw violated the IGA although, as set forth
above, Beebe Draw clearly did so by including property without the consent of the property
owners.
F. Diversion of Revenues Away from Weld County
The vast majority — 87.5% — of the ad valorem tax revenues collected by Sand Hills and
Beebe Draw are deductible from production severance taxes that would otherwise be paid to the
State of Colorado. Approximately half of these severance taxes are used to fund the Department
of Natural Resources' operations, including the Colorado Oil and Gas Conservation Commission.
The other half goes to the Department of Local Affairs which delivers its share to county and local
governments. Thus, a substantial portion of the tens of millions of dollars these two districts have
I The Court of Appeals' decision in the Beebe Draw Litigation contains errors of fact and law
and is self-contradictory. HighPoint, Bonanza and Noble are preparing a petition for writ of
certiorari review by the Colorado Supreme Court.
Weld County Board of Commissioners
November 12, 2018
Page 6
collected from HighPoint and others would have been delivered, instead, to Weld County or
localities within the County. Sand Hills and Beebe Draw have"jumped line" on Weld County and
the State of Colorado in order to pursue undisclosed "developments" in Adams County "among
other"places.
* *
As noted at the outset, HighPoint pays ad valorem taxes to scores of special districts
without objection and has no issue with being included in properly organized special districts
supervised by the appropriate governmental entities as required by the Special District Act.
Neither Sand Hills nor Beebe Draw have complied with the Act with regard to 70 Ranch, and it is
not just HighPoint that has been injured by these districts. Weld County, too, has been impacted
in several ways including:
1. Neither Sand Hills nor Beebe Draw ever presented a service plan or modified plan
to the Weld County Board of Commissioners for review and approval despite the fact that both
districts have, between them, collected over $35,000,000 (not counting $7,000,000 levied by
Beebe Draw currently being held by the Weld County Treasurer by order from the Colorado Court
of Appeals) in tax revenues from property located entirely in rural Weld County.
2. Sand Hills and Beebe Draw's service plans contemplate the provision of services
to benefit"developments" outside of Weld County, i.e., developments wholly within the Town of
Lochbuie or in Adams County "among others" with revenues raised from taxpayers in rural Weld
County.
3. In the absence of public notice and oversight called for by the Special District Act
and presided over by the Weld County Board of Commissioners,taxpayers within the county have
been deprived of an adequate forum and process (other than pursuing protracted and expensive
litigation) in which to comment on, consent or object to being taxed by Sand Hills and Beebe
Draw.
4. Beebe Draw is exploiting the December 2013 IGA and provisions in the Special
District Act to annex property in Weld County without review and approval by the Weld County
Board of Commissioners.
5. The activities of Sand Hills and Beebe Draw, paid for with tax revenues, compete
with private individuals and companies engaged in the business of supplying water and other
services to customers.
6. Sand Hills and Beebe Draw are diverting for their own purposes substantial sums
of tax revenues that would otherwise be paid to Weld County and local governments within the
county.
Weld County Board of Commissioners
November 12, 2018
Page 7
Sand Hills has committed to dissolve itself once the bankruptcy is resolved. Regardless,
on behalf of HighPoint, I respectfully urge this Board to be vigilant with regard to Sand Hills and,
more importantly, with regard to Beebe Draw. In particular, the Board should reconsider its IGA
with Beebe Draw and review Beebe Draw's current 2013 Revised Service Plan which High Point
contends(and the Court of Appeals agrees) has not been properly approved by Adams County and
which has never been presented for review and approval to Weld County.
Thank you for your attention to and consideration of these matters. I apologize for the
length of this letter but felt it worthwhile to outline for you in some detail an issue which has a
huge impact on Weld County as well as the parties involved in the litigation. I would be happy to
answer any questions or provide additional information if you would find it useful.
Sincerely,
1/4100W4)A k
•
Bill Owens
Enclosure
cc: Bruce Barker, Weld County Attorney
Frank Haug, Assistant Weld County Attorney
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Weld County
South Beebe Draw Metropolitan District
Intergovernmental Agreement
Concerning Inclusion of Property
This Intergovernmental Agreement Concerning Inclusion of Property("IGA") is made and
entered into to be effective the day of Jedeivi1 er ,2013,by and between
WELD COUNTY(the"County"), a body corporate and politic of the State of Colorado,and SOUTH BEEBE
DRAW METROPOLITAN DISTRICT("South Beebe"), a quasi-municipal corporation and political
subdivision of the State of Colorado.
RECITALS
A. South Beebe is an existing and validly operating metropolitan district originally organized in
1985 after approval of its service plan by Adams County.
B. Since its organization,South Beebe has assumed regional governmental responsibilities to
provide storm drainage facilities and services in the South Beebe Draw Basin,which Basin includes
property in both Adams and Weld Counties.
C. South Beebe has received petitions for inclusion of certain parcels of land located within
unincorporated Weld County. The land will be used for storm drainage ponds and facilities to serve
anticipated development in the area.
D. South Beebe has no other property within its boundaries that lies in unincorporated Weld
County,therefore,pursuant to statute,South Beebe advised the County of the petitions and requested
that the County find that the inclusions do not constitute material modifications of the South Beebe
service plan.
E. The County is willing to consent to the inclusion of property into South Beebe within Weld
County pursuant to this IGA.
NOW THEREFORE, in consideration of the mutual promises contained herein and other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the County
and South Beebe agree as follows:
AGREEMENT
1. Purpose and General Intent. Although the County is willing to consent to the inclusion of
property into South Beebe within unincorporated Weld County,the County has also determined that
special districts should not include property or provide services outside their boundaries without the
consent of the property owners and service users affected by such actions or where other governmental
entities provide such services. The purpose of this IGA is to limit South Beebe to the inclusion of
property only where the property owner has voluntarily consented to such inclusion and where other
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governmental entities do not already provide the same services or,only where other governmental
entities voluntarily consent to provision of services by South Beebe pursuant to an intergovernmental
agreement if the boundaries of the other government and South Beebe overlap.
2. Consent to Inclusion. The County consents to the inclusion of property into South Beebe in
unincorporated Weld County so long as:
a. South Beebe receives a petition from a landowner for such inclusion;
b. South Beebe acts in accordance with the provisions of§32-1-107, Colorado Revised
Statues,with regard to overlapping special districts;
c. South Beebe acts in conformance with the provisions of§32-1-207(2)(b)-(d),Colorado
Revised Statues,with regard to the provision of service in unincorporated Weld County and, in
particular,South Beebe shall not impose extraterritorial fees on any landowner in unincorporated Weld
County without the written consent of such landowner; and
d. South Beebe does not attempt to include property without the consent of the
landowner utilizing the provisions of§32-1-401(2),Colorado Revised Statues.
3. Material Modification if Breach. South Beebe Draw agrees that if the inclusion of property into
its boundaries that lies within unincorporated Weld County occurs in contravention of any of the
provisions of paragraph 2 above,such action shall constitute a material modification of its service plan
and South Beebe shall be subject to a service plan amendment process with the County and the
inclusion of property which triggers such service plan amendment shall be ineffective until such time as
the Board of County Commissioners of Weld County approve such service plan amendment.
4. General Provisions.
a. NOTICES. Any notices, demands or other communications required or permitted to be
given,shall be given in writing,delivered personally or sent by U.S. Mail,addressed to the Parties at the
addresses set forth below or at such other address as either Party may hereafter or from time to time
designate by written notice to the other Party given in accordance herewith.
To the District:
South Beebe Draw Metropolitan District
c/o Community Resource Services
7995 E Prentice Ave#103E
Greenwood Village,Colorado 80111
With a copy to:
Miller&Associates Law Offices, LLC
1641 California St,#300
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Denver,Colorado 80202
Attention: Dianne D.Miller, Esq.
To the County:
Weld County Attorney
P.O. Box 758
1150 O Street
Greeley,Colorado 80632
Any legal notices required to be delivered to landowners or required to be published regarding a
petition for the inclusion of property by South Beebe shall be published in the Greeley Tribune if the
property which is the subject of the inclusion is situate in Weld County.
b. ASSIGNMENT AND DELEGATION. The rights,or any parts thereof,granted to
the Parties herein may not be assigned. The obligations,or any parts thereof,of the Parties may not be
delegated.
c. NO THIRD PARTY BENEFICIARIES. It is expressly understood and agreed that
enforcement of the terms and conditions of this Agreement,and all rights of action relating to such
enforcement,shall be strictly reserved to the Parties and nothing contained in this Agreement shall give
or allow any such claim or right of action by any other third party on such Agreement. It is the express
intention of the Parties that any person other than Parties receiving services or benefits under this
Agreement shall be deemed to be an incidental beneficiary only.
d. AMENDMENT AND MODIFICATION. This Agreement may be amended or modified only
in a writing signed by both Parties.
e. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the
Parties relating to the subject matter herein and sets forth the rights, duties and obligations of each
Party to the other as of this date. Any prior agreements,promises, negotiations or representations not
expressly set forth in this Agreement are of no force and effect.
f. SEVERABILITY. If any provision of this Agreement is determined to be unenforceable or
invalid,the unenforceable or invalid part shall be deemed severed from this Agreement,and the
remaining portions of this Agreement shall be carried out with the same force as if the severed portions
had not been part of this Agreement, provided that the Parties both agree that the severed provision
does not alter the intent and/or purpose of the Agreement.
g. NO WAIVER. No waiver of any of the provisions of this Agreement shall be deemed to
constitute a waiver of any other provisions of this Agreement,nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided herein, nor shall the waiver of any default
hereunder be deemed a waiver of any subsequent default hereunder.
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h. GOVERNMENTAL IMMUNITY. Nothing herein shall be construed as a waiver of the
rights and privileges of the County or the District pursuant to the Colorado Governmental Immunity Act,
§24-10-101,et seq.,C.R.S.,as amended from time to time.
COUNTERPART EXECUTION. This Agreement may be executed in several counterparts,
each of which shall be deemed an original,and all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF,Weld County and South Beebe Draw Metropolitan District have
executed this Intergovernmental Agreement to be effective as of the date first above written.
WELD COUNTY
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Wi 1iam F. Garcia, Chair
Attest: '1\1\Z A4-4- 41:"`"'-'431 "
Clerk to the Board ` 1laZ
4a ` DEC 182013
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Deputy C erk to the Boar'
.YiyyM:yji+�.
H BEEBEDRAW METROPOLITAN DISTRICT
Robert A. Lembke, Chairman and President
Attest:
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Approved as to Form:
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Miller&Associates Law Offices, LLC
General Counsel to South Beebe Draw Metropolitan District
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