Regulation by State Agency Does Not Narrow Landowner Claims

A landowner claimed that an energy company’s pollution damaged the property, in violation of contract terms and common law nuisance and trespass prohibitions. An arbitration panel agreed, and awarded over $20 million.  The energy company tried to vacate the award in court, arguing that only the state agency that regulates contamination from oil and gas production can determine if the energy company’s activities damaged the property.  In Forest Oil v. El Rucio Ranch, the Texas Supreme Court ruled against the energy company, and affirmed the award.

No Exclusive or Primary Jurisdiction

In affirming the arbitration award, the Court held that the legislation giving authority to the state agency to regulate contamination from oil and gas operations did not narrow the rights of landowners to seek compensation.

The Court rejected the energy company’s argument that the state agency had exclusive jurisdiction, which would have precluded the claims; and rejected the argument that the state agency had primary jurisdiction, which would have delayed the claims until the agency determined what, if any, remediation was necessary due to the alleged contamination. Therefore, claims based on a contract or allegations of nuisance or trespass could go forward.

Limited Review of an Arbitration Award

Review of an arbitration award is extremely limited. A few of the issues not addressed, which the Court probably would have reviewed had this been only a court case, include the measure of damages and issues of causation.  The largest part of the award was $15 million for property damage.  Another part was for an individual allegedly contracting cancer due to the energy company bringing pipe with naturally occurring radiation onto the property.  If these had been jury awards, the Court’s review of the facts and law would have been much more detailed, and far less deferential.

Also, due to the limited review of an arbitration award, the Court had no opportunity to consider the standard adopted by certain mid-level Texas appellate courts, that the common law cannot compel remediation beyond the agency’s “no action” levels. This is still an open question as to the Texas Supreme Court.

The case is a reminder that appellate courts have many tools to address “runaway” juries, but very few options to reduce arbitration awards.

For a copy of the Texas Supreme Court’s opinion click here.

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