wet

By Trey S. McCowan, Claire E. Juneau, and Tyler Moore Kostal

On March 3, 2017, the United States Fifth Circuit Court of Appeals issued its long-awaited opinion in the matter of Board of Commissioners of the Southeast Louisiana Flood Protection Authority-East, et al. vs. Tennessee Gas Pipeline Company, LLC, et al., No 15-30162, Slip Op. (5th Cir. 3/3/17). The Fifth Circuit’s decision affirmed the U.S. Eastern District Court of Louisiana’s decision to dismiss an action brought by the Flood Protection Authority against ninety-seven oil and gas and pipeline companies claiming that historic oil and gas exploration, production and transportation activities contributed to wetland loss in St. Bernard and Plaquemines Parishes.

The Flood Protection Authority’s lawsuit asserted claims for recovery based on theories of negligence, strict liability, violations of the natural servitude of drain, public and private nuisance and breach of contract. The Flood Protection Authority also asserted that it was a third-party beneficiary of various wetland permits issued to members of the oil and gas industry. The Flood Protection Authority sought damages and injunctive relief claiming that each canal dredged by defendants would have to be backfilled and revegetated. The Flood Protection Authority also claimed that the industry members were responsible for the costs of “wetlands creation, reef creations, land bridge construction, hydrologic restoration, shoreline protection, structural protection, bank stabilization and ridge restoration” throughout wetlands located in an area in St. Bernard and Plaquemines Parishes described as the “buffer zone.”

The complaint described “a longstanding and extensive regulatory frame work under both federal and state law” that protects against the effects of dredging activities. According to the Flood Protection Authority, these regulations imposed legal duties on defendants to remedy wetland loss caused both directly and indirectly by dredging activities. The complaint specifically enumerated four main components of this framework including the Rivers and Harbors Act of 1899;[1] the Clean Water Act of 1972;[2] “regulations related to rights-of-way granted across state-owned lands and water bottoms administered by the Louisiana Office of State Lands” and the Coastal Zone Management Act of 1972.[3] However, the Flood Protection Authority claimed that it was relying solely on state law for recovery.

The Flood Protection Authority’s lawsuit was removed to the U. S. District Court for the Eastern District of Louisiana on multiple jurisdictional grounds including federal question jurisdiction under a narrow exception to the well-pleaded complaint rule as set forth in Grable & Sons Metal Products, Inc. vs. Darue Engineering and Manufacturing, 545 U.S. 308, 125 S. Ct. 2363, 162 L. Ed. 2d 257 (2005) and Gunn v. Minton, ___U.S.____, 133 S. Ct. 1059, 185 L. Ed. 2d 72 (2013).

After the Flood Protection Authority’s motion to remand was denied, defendants filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) on the ground that the Flood Protection Authority’s complaint failed to state viable causes of action against defendants. The district court agreed with the defendants and dismissed all claims. The Flood Protection Authority appealed. After taking the matter under advisement for over a year, the Fifth Circuit issued its opinion affirming the district court’s decision finding federal jurisdiction and dismissing the case.

The Fifth Circuit first affirmed the district court’s decision finding federal jurisdiction. The Fifth Circuit held that the claims in the Flood Protection Authority’s suit, although couched in terms of state law, fell within the exception set forth in Grable and Gunn finding that three of the Flood Protection Authority’s claims necessarily raised federal issues: “the negligence claim, which purportedly draws its requisite standard of care from three federal statutes; the nuisance claims which rely on the same standard of care; and the third-party breach of contract claim, which purportedly is based on permits issued pursuant to federal law.”

Under the limited Grable/Gunn exception to the well-pleaded complaint rule, federal jurisdiction exists where “(1) resolving a federal issue is necessary to the resolution of the state-law claim; (2) the federal issue is actually disputed; (3) the federal issue is substantial; and (4) federal jurisdiction will not disturb the balance of federal and state judicial responsibilities.”

In finding that the Flood Protection Authority’s claims relied solely on interpretations of federal law, the Fifth Circuit rejected the Authority’s claim that Louisiana’s coastal use regulation requiring restoration of mineral exploration and production sites “to the maximum extent practicable” imposed an obligation on the defendants. The Fifth Circuit held that “the ‘maximum extent practicable’ language is “a regulatory determination that entails ‘a systematic consideration of all pertinent information regarding the use, the site and the impacts of use… and a balancing of their relative significance.’” No Louisiana court has used this or any related provision as the basis for imposing state tort liability. The Fifth Circuit further stated that “the Louisiana Supreme Court has explicitly rejected the prospect that a statutory obligation of ‘reasonably prudent conduct’ could require oil and gas lessees to restore the surface of dredged land.”[4]

With respect to the second prong of the Grable test, the Fifth Circuit held that there were in fact, federal issues in dispute, i.e. the interpretation of the scope of obligations under the River and Harbors Act and the Clean Water Act. Consequently, this element of the Grable test was satisfied.

The Fifth Circuit next found that the federal issues were substantial noting the “importance of the issue to the federal system as a whole.”[5] Since the Levee Authority’s claims implicated “an entire industry” and conduct subject to an extensive federal permitting scheme that were issues of “national concern,” the Fifth Circuit affirmed the district court’s finding that the federal issues were substantial and that the third Grable factor was satisfied.

With respect to the final Grable factor, the Fifth Circuit affirmed the district court’s finding that the ruling would not cause and enormous shift of traditionally state cases into federal courts reasoning that the Flood Protection Authority was relying on federal law to establish liability and that resolution of its claims could affect coastal land management in multiple states as well as the national oil and gas market.

Finding that the district court had properly retained jurisdiction, the Fifth Circuit next addressed the substantive defenses raised by the defendants and affirmed the district court’s ruling dismissing the Flood Protection Authority’s claims.

First, the court found that the Flood Protection Authority failed to state claims based on negligence and strict liability because the defendants owed no duty to the Authority under federal or state law. Quite simply, the enunciated rules and principles of law cited by the Flood Protection Authority did not extend to and were not intended to “protect this plaintiff from this type of harm arising in this manner.” The Fifth Circuit affirmed the district court’s decision that the River and Harbors Act, the Clean Water Act, the Federal Coastal Zone Management Act and state law did not create a duty that bound defendants to protect the Flood Protection Authority from increased flood protection costs that arise out of coastal erosion allegedly caused by defendants’ dredging activities.

With respect to the Flood Protection Authority’s claims based on servitude of natural drain, the Fifth Circuit held that there is no basis in law for “finding that a natural servitude of drain may exist between non-adjacent estates with respect to coastal storm surge.” The court also noted that storm surge did not constitute “surface waters that flow naturally from an estate situated above” as specified in the Civil Code articles pertaining to the servitude of natural drain.

Finally, the Fifth Circuit affirmed the district court’s holding that the Flood Protection Authority failed to state a valid “nuisance” claim under Louisiana Civil Code article 667 because the Authority did not sufficiently allege in its complaint that it was a “neighbor” of any of defendant’s property. Although, the Flood Protection Authority was correct in its argument that there is no rule of law compelling “neighbor” to be interpreted as requiring certain “physical adjacency or proximity,” the Fifth Circuit has previously found that there must be “some degree of propinquity, so as to substantiate the allegation that activity on one property has caused damage on another.” Consequently, a nuisance claim under article 667 requires more than simply a “causal nexus,” and the Flood Protection Authority failed to set forth sufficient factual allegations mandating dismissal of the nuisance claims.

It remains to be seen if the Flood Protection Authority will pursue further review in its lawsuit against the oil and gas industry in either the Fifth Circuit or United States Supreme Court.

****************

[1] 33 U.S.C. §§ 401-467.

[2] 33 U.S.C. §§ 1251-1388.

[3] 16 U.S.C. §§ 1451-1466.

[4] Terrebonne Parish School Board vs. Castex Energy, Inc., 893 So. 2d 789, 801 (La. 2005)(“We hold that, in the absence of an express lease provision, Mineral Code article 122 does not impose an implied duty to restore the surface to its original, pre-lease condition absent proof that the lessee has exercised its rights under the lease unreasonably or excessively.”).

[5] Citing, Gunn v. Minton, 133 S. Ct. 1059, 1066 (2013) and Smith v. Kansas City Title and Trust Co., 255 U.S. 180, 198-202 (1921).