By Tyler Moore Kostal

The Texas Supreme Court recently handed down a decision in Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 14-0979, 2017 WL 1541086 (Tex. Apr. 28, 2017), that at first glance, is reminiscent of the landmark Louisiana legacy cases Corbello and Magnolia Coal. Forest Oil, like Corbello, supports the landowner’s right to a judicial setting to resolve its claims while minimizing the role of the relevant state agency. And like Magnolia Coal, Forest Oil dispenses with the presumed exclusive or primary jurisdiction of the Texas Railroad Commission (RRC) over oilfield contamination claims by landowners. However, what is still to be considered by Texas courts is the viability of the claim and certain Louisiana legacy defenses. Since Corbello, the Louisiana Supreme Court has issued rulings on prescription (Marin) and subsequent purchaser (Eagle Pipe) that have reduced the force of legacy litigation. Further, similar to Louisiana’s Act 312, the Texas legislature will have an opportunity to enact legislative and regulatory changes. The bottom line is that the long-term impact of Forest Oil and the future of Texas oilfield litigation are far from certain.

In this case, Forest Oil (now known as Sabine Oil & Gas) produced natural gas on a 27,000-acre ranch in Hidalgo County, Texas, for over 30 years. Forest’s oil and gas leases covered about 1,500 acres, and Forest operated a gas processing plant on a 5-acre tract. In 2004, one of the landowners learned (from a former Forest employee) that Forest had contaminated the property. In 2005, the landowners filed suit alleging soil and groundwater contamination from various oilfield wastes, including naturally occurring radioactive material (NORM). One of the landowners also alleged that tubing, donated by Forest and used in the construction of rhinoceros pens, contained NORM that caused a cancerous growth resulting in amputation of his leg.

Forest eventually compelled arbitration pursuant to a 1999 settlement agreement signed by the landowners in a separate lawsuit over oil and gas royalties. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (holding that the arbitration clause in the settlement agreement was enforceable). That agreement also provided for the ongoing care and remediation of the surface estate by Forest. After a 17-day hearing, the arbitration panel awarded the landowners $15 million in property damages, $500,000 in personal injury damages (NORM cancer claim), $500,000 in punitive damages, and $5 million in attorney fees. The panel also granted declaratory relief for remediation under the 1999 agreement and ordered Forest to provide the landowners with a $10 million bond to assure its performance of a prior remediation agreement.

The landowners filed a motion to confirm the award in state court. Forest moved to vacate the award on several grounds, namely on the basis that the RRC had exclusive or primary jurisdiction over the landowners’ claims. Forest also argued that the damage awards violated Texas law. The trial court vacated the panel’s $10 million bond requirement but otherwise denied Forest’s motion. See Forest Oil Corp. v. EL Rucio Land, 2012 WL 10170451 (Tex. 55th Dist.). In confirming the award, the trial court incorporated the actual and punitive damages and awarded the landowners $6.7 million in attorney fees. The appellate court affirmed. See Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58 (Tex. App. 1st Dist. 2014). The Texas Supreme Court granted Forest’s petition for review.

First, the court considered whether the RRC has exclusive jurisdiction over the landowners’ claims. Forest argued that the legislature intended the RRC to have exclusive jurisdiction over environmental oilfield disputes, such that the arbitration panel lacked jurisdiction to enter the award and the trial court lacked jurisdiction to confirm it. The court disagreed concluding that the legislature did not express a clear intent to abrogate a landowner’s common-law rights in favor of a statutory remedy.

Forest also argued that public policy necessitated the RRC’s exclusive jurisdiction over these matters. It argued that if landowners seek remediation both from the RRC and through the courts, they could recover twice for the same injury. Forest further argued that if a landowner does not spend a damage award on remediation, the RRC remains responsible to the public to order cleanup. The court rejected Forest’s policy considerations stating that it was “an argument for the Legislature.” Instead, the court offered a solution for Forest and other defendant operators: “By seeking an RRC determination of contamination allegations and complying with RRC cleanup orders, an operator can reduce or eliminate the landowners’ damages.”

Next, the court considered whether the RRC has primary jurisdiction over the claims. Forest argued that the RRC has primary jurisdiction because only the RRC can determine what the law requires for remediation. Forest argued that the parties’ 1999 settlement agreement, which required that Forest remove hazardous material only “if, as and when required by law,” obligated Forest to remediate only if required by the RRC. The court disagreed and stated: “But while RRC regulations and orders certainly inform the extent to which remediation of contamination is required by law, they do not supplant Forest’s common law duties, which are also required by law.” The court reasoned that the doctrine of primary jurisdiction does not apply to claims that are “inherently judicial in nature,” like trespass, negligence, fraud, and breach of contract—all claims brought by the landowners and all inherently judicial in nature. Because the landowners’ claims are inherently judicial and not dependent on the standards of regulatory compliance, the court concluded that the doctrine of primary jurisdiction does not apply.

Ultimately, the court concluded that the RRC has neither exclusive nor primary jurisdiction over the landowners’ claims. Therefore, the landowners were free to bring common law claims like negligence, trespass, and breach of contract in a judicial forum against Forest.

It is important to note that the Texas Supreme Court did not address the amount of the damages award. However, the appellate court found that, contrary to Forest’s claims, the arbitration panel’s view of the evidence, application of the law to the evidence, and ultimate decision, did not rise to the level of “gross mistake.” The landowners offered expert testimony valuing the ranch, “unimpaired by environmental contamination,” at $65.5 million. That expert determined that the diminished value of the ranch was $45.85 million. Therefore, he claimed that because of the environmental contamination, the value of the ranch had been diminished by $19.65 million. Recall that the arbitration panel awarded the landowners $15 million in property damages, and the appellate court affirmed.