The U.S. Court of Appeals for the 10th Circuit on Wednesday rejected an attempt to nullify a mineral rights settlement after intervening parties claimed that the oil and gas dispute could only be heard in state court.

TEP Rocky Mountain LLC operates oil and gas wells in Colorado, all of which have agreements that give the mineral rights owners a portion of profits. In July 2017, multiple mineral rights companies sued TEP for payments not in line with contracts and in violation of a 2006 settlement agreement in state court to which TEP was a party.

The case was moved to federal court and the parties had reached a preliminary settlement in September 2018 when three individuals – Ivo Lindauer, Sidney Lindauer and Ruther Lindauer – intervened in the case. They were also party to the 2006 settlement agreement, and pointed to language requiring that “this Court [Garfield County District Court] shall retain continuing jurisdiction of this action to address any issues concerning implementation of the Settlement Agreement.”

The federal district judge agreed and dismissed the case because it lacked jurisdiction. TEP, who did not notify the judge about the potential jurisdictional conflict initially, asked the court to reconsider. The federal judge subsequently reinstated the case in 2019, explaining that deference to the state court is “not an absolute obligation.” The judge then approved the new settlement agreement.

Circuit Judge Carolyn B. McHugh, writing for the three-member appeals panel, determined that states cannot take away jurisdiction that Congress granted to federal courts. An agreement between parties to litigate only in state court “has absolutely no bearing on a federal court’s subject matter jurisdiction,” she wrote.

The court pointed to a 2018 case, also from the 10th Circuit, which held that federal courts should abstain from cases in their jurisdiction that might cause “undue interference” in state court proceedings. However, McHugh believed that the current federal case would not stop a possible contempt claim against TEP for violating the 2006 settlement. Circumstances that conflict with state proceedings “are not present every time a federal court is asked to approve a private settlement agreement that resolves uncertainty flowing from an earlier settlement agreement resolving state court litigation,” she concluded.

Rejecting the Lindauers’ claim that matters involving TEP were to be litigated solely in Garfield County, McHugh said that the 2006 settlement language did not bind all parties on a specific subject to that specific court.

The case is Elna Sefcovic, LLC, et al. v. TEP Rocky Mountain, LLC.