Oil and Gas Lawyer Blog
On February 24, the Texas Supreme Court issued its opinion in ExxonMobil Corporation v. Lazy R Ranch, LP, et al., No. 15-0270. ExxonMobil v. Lazy R Ranch The 8-0 opinion was authored by Chief Justice Nathan Hecht. The case provides important reminders to landowners who have oil and gas operations on their property.
In 2008, Exxon sold its lease on the Lazy R Ranch, a 20,000-acre ranch near Monahans, where it had conducted operations for almost 60 years. The ranch owners hired an environmental engineer to investigate whether Exxon’s operations had caused contamination that should be remediated. The investigator found four sites with contamination and warned that the contamination could threaten groundwater. Exxon refused to remediate the sites, and the landowner sued.
The suit sought monetary damages for the contamination and injunctive relief to require Exxon to remediate the four contaminated sites. Exxon filed a summary judgment motion arguing that the claims were barred by limitations. The trial court granted Exxon’s motion. The 8th Court of Appeals reversed and remanded.
The Supreme Court’s opinion first addresses Exxon’s argument that plaintiffs’ claims were barred by limitations. It held the evidence showed conclusively that any contamination at two of the polluted sites occurred prior to 2005, when those sites ceased operations, so Exxon’s limitations plea should be granted as to those two sites. As to the other two sites, active operations were still being conducted when suit was filed, and the court found the evidence conflicting as to when the contamination might have occurred and reversed the trial court’s ruling as to those two sites.
Plaintiffs argued that the discovery rule should apply to defer accrual of its claims until the contamination was or should reasonably have been discovered. The court rejected this argument.
[W]e have previously stated that the application of the discovery rule in nuisance cases is rare, as plaintiffs typically learn of unreasonable discomfort or annoyance promptly. Nuisances caused by oil and gas operations are no different. [The ranch owner] testified that she often drove across the ranch, observing ExxonMobil’s operations, and seeing and being told of oil spills and cleanup operations. There was nothing inherent in the possibility of contamination that kept the Ranch from hiring [its environmental expert] sooner than it did.
Exxon argued that plaintiffs’ suit for injunctive relief should also be barred by limitations and should be subject to the “economic feasibility exception.” Plaintiffs argued that they should be entitled to require Exxon to prevent soil contamination from spreading into groundwater – as abatement of the nuisance caused by Exxon’s operations. The court cited with approval prior cases holding that limitations is not a defense to abate a continuing nuisance. But the court declined to address whether plaintiffs’ claims for injunctive relief to remedy a continuing nuisance should be subject to a limitations defense. It ruled that Exxon had not adequately addressed plaintiffs’ claims for injunctive relief in its original motion for summary judgment, and that the plaintiffs’ arguments on what injunctive relief they were seeking had evolved over the course of the case, “muddling the issue further.”
The court’s opinion also affirms Texas’ “economic feasibility exception” to the measure of damages for contamination of land.
Even if the injury is temporary, the cost to repair the injury cannot be recovered when the cost exceeds the loss in the land’s value due to the injury.
But the court declined to rule whether this rule should apply to suits for injunctive relief to abate a nuisance.
Takeaways:
Barring a settlement, the issue of the availability of injunctive relief will undoubtedly be raised again on remand and is likely to make its way back to the Supreme Court.
The facts here illustrate the impossible position the courts have put landowners in when spills occur from oil and gas activities on their property. Spills around wells and tank batteries are common occurrences. In most cases, contaminated soils are either removed from the property or spread out on the property. As the court’s opinion notes, the Railroad Commission allows contaminated soil to remain onsite if it does not exceed a defined level of contamination. But while such events are common, they do not necessarily give reason to suspect groundwater contamination or risk to groundwater. Yet because of the courts’ refusal to allow landowners to rely on the discovery rule landowners are forced to conduct their own investigation of each spill to ensure that no risk to groundwater is indicated. This may require drilling of test wells to determine the extent of subsurface contamination. In addition, many spills or leaks of hydrocarbons – from condensate tanks and pipelines, for example – may give no evidence of contamination from inspection of the surface. While the Railroad Commission has jurisdiction to require remediation of contamination, it has neither the staff nor the resources to investigate every oil field spill event.
Finally, the court’s affirmation of the “economic feasibility exception” to the measure of damages for injury to land perpetuates the unjust limitation on landowners’ ability to recover for damages caused by oil field pollution, a topic I have written about before.