Blogs

by Kelly Becker

In Barasich, et al. v. Shell Pipeline Co. LP, et al., 2008 U.S. Dist. Lexis 47474 (E.D. La. 6/19/08), at issue was, inter alia, whether a group of commercial oyster fishermen could bring a class action against a group of defendants that owned land-based storage tanks or pipelines that burst as a result of Hurricane Katrina, causing a release of crude oil that allegedly damaged the aquatic wildlife, estuaries, and plaintiffs’ interest in their oyster leases. At the outset, the court reaffirmed its earlier ruling that the plaintiffs failed to state a claim for alleged damages to non-proprietary State-owned natural resources, including marine estuaries. Thus, the only question was whether the plaintiffs could pursue a class action for the remaining claim of purported damage to their individual oyster leases. 

           The defendants moved to strike the class action, arguing that the plaintiffs could not meet the requirements for class certification under Federal Rule of Civil Procedure Rule 23.   That Rule requires plaintiffs seeking to certify a class to establish (1) numerosity, (2) commonality, (3) typicality, and (4) adequate representation. In addition, plaintiffs must demonstrate that (1) common questions of fact and law predominate, and (2) the class action device would be the best method for procedure. The plaintiffs purported to define the class as “all commercial oystermen whose oyster leases were contaminated by oil discharged during Hurricane Katrina due to the negligence of defendants.” 

            Plaintiffs argued that this proposed class would ensure adequate representation of all individual plaintiffs because plaintiffs’ experts had “developed significant factual information which supports their allegations that the oil from [d]efendants’ spills likely combined and mixed together to create a large oil slick affecting many of the oyster leases,” known as the “washing machine” theory. The defendants’ countered, arguing that fatal to the class definition was any geographic boundaries, making the class not ascertainable. The court agreed with the defendants, holding that the plaintiffs did not meet their burden of adequately defining the class. The court recognized the point raised by the defendants that the plaintiffs failed to establish a geographic boundary and further explained that it would require an individualized determination of the merits of each plantiff’s claim in order to assess whether each plaintiff was a proper member of the proposed class.    

            The court further held that the plaintiffs had not met their burden of proving that common issues of fact and law would predominate. The court focused heavily on the plaintiffs’ purported attempt to oversimplify the burden of proof that would require more than a common event such as a pipeline or tank rupture. Rather, the court explained that each plaintiff would be required to prove that its particular oyster lease suffered damages as a result of a specific defendant’s release of oil. The court held that “each oyster lessee must establish that the conduct of a particular [d]efendant was a substantial factor in causing the alleged damage to the particular acreage, and that quantifiable damage to that acreage resulted.” Because plaintiffs could not meet this burden with any proof common to the class, the court granted defendants’ motion to strike class certification.  

By Tiffany Delery Davis

In Noble Energy, Inc. v. Bituminous Cas. Co., No. 07-20354, 2008 WL 2232085 (5th Cir. 2008), the Fifth Circuit affirmed summary judgment in favor of the defendant, Bituminous Casualty Company, in an insurance coverage dispute concerning whether Bituminous had a duty to defend and indemnify plaintiff, Noble Energy, Inc., in connection with an underlying suit. The underlying suit involved claims arising out of an explosion and fire at a disposal facility. 

          Flammable gas, condensed from hazardous oilfield waste being unloaded from trucks at the disposal facility, caused a truck’s diesel engine to race and then explode, killing two workers, and injuring several others. Noble sued Bituminous, claiming that Bituminous had a duty to indemnify and defend Noble in the underlying lawsuit, because Noble was an additional insured under the Bituminous policy. 

            The Bituminous policy contained a pollution exclusion which excluded coverage for “bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants.” The Fifth Circuit found the policy’s pollution exclusion to be unambiguous, and that the combustible vapor that emanated from the waste met the policy’s definition of “pollutant.” The Court reasoned that any alleged liability for the workers’ deaths and bodily injuries arose out of the discharge, dispersal, release, or escape of the hazardous waste and its vapors. Thus, the Court held that coverage for the claims against Noble in the underlying lawsuit was excluded under the terms of the policy, and Bituminous was not obligated either to defend or indemnify Noble. 

            The Court did not address whether Noble was an additional insured under the Bituminous policy, explaining that the pollution exclusion would bar coverage of the underlying plaintiffs’ claims even if Noble were held to be an additional insured. 

By Claire Bienvenu

On May 23, 2008, the Ninth Circuit vacated EPA’s rule exempting discharges of sediment resulting from oil and gas construction activities from National Pollutant Discharge Elimination System (NPDES) permit requirements. NRDC v. EPA, No. 06-73217 (9th Cir. 5/23/08).  The Ninth Circuit found EPA’s rule, which was a codification of a recent exemption added to the Clean Water Act (CWA or the Act), to be an impermissible interpretation of the Act. Unless overturned, the court’s decision to vacate the regulation imposes an unexpected obligation on the oil and gas industry to obtain NPDES permits for all construction activities disturbing land area greater than or equal to one acre in size. 

            The Decision

            EPA’s final rule implemented an amendment to the Clean Water Act’s definition of “oil and gas exploration and production” that was contained in the Energy Policy Act of 2005. The new definition of “oil and gas exploration and production” includes “construction activities,” which brings oil and gas construction activities within the CWA § 402(l)(2) exemption from NPDES permitting. Section 402(l)(2) exempts discharges from oil and gas E&P activities that are composed of flows that “do not come into contact with, any overburden, raw material, intermediate products, finished product, byproduct, or waste products.” In order to revise its codification of this statutory exemption to include discharges from construction activities, EPA revised 40 C.F.R. §122.26(a)(2) to provide that sediment discharged from oil and gas construction activities would not require NPDES permits, even if the discharge contributed to a violation of the water quality standard.

            The Ninth Circuit used the following Chevron two step analysis to vacate the regulation. The court first found that there was no clear indication from Congress that it intended to exempt “sediment” discharges from permitting requirements, because the word “sediment” did not appear anywhere in the statute. Instead, Congress only exempted discharges from construction activities where the runoff is not contaminated with the specified contaminants. Citing former EPA guidance, the Court secondly found that EPA’s rule was arbitrary and capricious because it conflicted with EPA’s historical position that sediment constituted “contamination” under CWA § 402(l)(2). The Ninth Circuit rejected EPA’s argument that Congress intended to exempt sediment because it is the pollutant most commonly associated with construction activities.

            The Effect

            The exemption of sediment discharges from NPDES permitting requirements has been available to oil and gas construction activities since the final rule’s issuance on June 12, 2006. However, the Ninth Circuit’s decision to vacate the rule leaves oil and gas companies without the exemption, at least for the time being, unless the decision is overturned on possible rehearing or appeal to the Supreme Court.

            The Ninth Circuit’s decision has particular impact on small oil and gas construction activities (those that disturb one to five acres) because they have not previously been required to obtain an NPDES permit.  Small oil and gas construction activities have not needed an NPDES permit because the NPDES permit authorization deadline for small construction activities was June 12, 2006, the same day on which EPA’s final rule excepting sediment discharges from NPDES permitting was promulgated. However, now that the small oil and gas construction activities deadline has passed and there is no exemption available, these construction activities require an NPDES permit. As for large construction activities, they previously required NPDES permits (prior to June 12, 2006). After a brief period of exemption, they require a permit once again. 

            An EPA Stormwater Construction General Permit is available for these activities. However, oil and gas companies in states that have received NPDES delegation must obtain permits through the state programs. These states enact their own general permits, and the status of these state permits vary throughout the country. In those instances where no general permit is available, oil and gas construction activities will need to obtain individual NPDES permits. 

            Stay tuned for further developments.

In Victor Stanley, Inc. v. CreativePipe, Inc., __ F.Supp.2d __, 2008 WL 2221841 (D.Md. 2008), the court held that defendants waived any privilege that may have attached to 165 electronically stored documents, including communications between the defendants and their attorneys, which were mistakenly turned over to the plaintiff.

.    Acknowledging the risk of inadvertent disclosure typically associated with large document productions, defendants initially sought the court’s approval of a “clawback agreement.” Despite the plaintiff’s cooperation, defendants abandoned their plans to effectuate such an agreement and decided to conduct a document by document privilege review. Defendants’ decision was based on the court’s extension of discovery time by four months.

     After defendants had made a series of document productions over a period of several weeks, the plaintiff discovered the potential privileged/protected documents and immediately notified the defendants. The plaintiff then filed a motion seeking a ruling that any privilege associated with the electronic documents had been waived. The defendants argued that their production of the 165 electronic documents was inadvertent, and, therefore, no waiver had occurred.  

     In support of their argument, the defendants presented affidavits describing their efforts in conducting a pre-production privilege review. According to defendants, they employed a computer forensics expert who used approximately seventy search terms to locate privileged documents. All documents returned during the keyword search were then delivered to the defendants’ lawyers for a pre-production privilege review.       

    Documents that were not text-searchable were given to the defendants’ lawyers for manual privilege review. Due to time constraints, however, the lawyers only reviewed the title pages of these documents. Documents whose title page indicated that a privilege might apply were reviewed in their entirety.

    Based on the limited information contained in the defendants’ affidavits, the court was left to infer that the text-searchable documents not flagged by the keyword search were produced to the plaintiff along with the non text-searchable files that defense lawyers had determined were not privileged.

    The court described three different approaches that have been taken by courts when deciding whether the inadvertent production of privileged materials constitutes waiver. Under the lenient view, the court found that defendant’s conduct would not constitute a waiver because any such waiver requires a “knowing and intentional relinquishment of the privilege/protection.” Based on the decisions of other district courts within its circuit, however, the court found that the appropriate standard to apply was either the strict or intermediate approach.            

      The strict approach provides that waiver occurs once the privileged information is disclosed “because once disclosed there can no longer be any expectation of confidentiality.” The court found that there was “no legitimate doubt” that the defendants had waived any privilege attaching to the 165 documents at issue under the strict approach.  The court further held that even under the intermediate approach, the result would be the same. 

    The intermediate approach considers the reasonableness of the precautions taken by the producing party to prevent inadvertent disclosure. The court found that the defendants had not met their burden of proving that their conduct was reasonable based on their failure to provide information regarding: “the keywords used; the rationale for their selection; the qualifications of defense counsel to design an effective and reliable search and information retrieval method; whether the search was a simple keyword search, or a more sophisticated one, such as one employing Boolean proximity operators; or whether they analyzed the results of the search to assess its reliability, appropriateness for the task, and the quality of its implementation.”

    As to the non text-searchable documents, the court found that defendant’s assertion that time-constraints allowed a review only of the title pages was discredited by the fact that “defendants neither sought an extension of time from the court to complete an individualized review nor reinstated their request for a court-approved non-waiver agreement, despite their awareness of how it would have provided protection against waiver.”             

     Finally, the court pointed out that because many of the documents contained communications between defendants and their lawyers, “any order issued now by the court to attempt to redress these disclosures would be the equivalent of closing the barn door after the animals have already run away.”

 In Germany v. ConocoPhillips Co., 2007-1145 (La. App. 3 Cir. 3/5/08), — So. 2d –,  the Third Circuit upheld the trial court’s ruling that under Act 312 a single trial of all issues should be held prior to referring a case to the Louisiana Department of Natural Resources (“LDNR”) for the development of a remediation plan. 

     In Germany, the plaintiff landowners sued four oil and gas corporations for the remediation of property allegedly damaged by oil and gas operations.  ConocoPhillips filed a motion in limine arguing that under Act 312 (codified as La. R.S. 30:29) trial must proceed in three stages.  ConocoPhillips argued that the three stages involve: first, a trial to determine whether environmental damage occurred, and if so, the party/parties liable for such damage; second, a referral to LDNR to develop a remediation plan; and third, a trial where the court enters a judgment regarding the remediation plan and determines whether there are any damages incurred by Plaintiff not addressed in the remediation plan.  If any unaddressed damages exist, then another trial is to be held on those claims.  The Plaintiffs argued that Act 312 does not call for such a bifurcation of the issues and both the trial court and Court of Appeal agreed.

            The Court of Appeal based its decision, in part, on the decision of the Louisiana Court of Appeal for the Fourth Circuit in Duplantier Family Partnership v. BP Amoco, 07-293 (La. App. 4 Cir. 5/16/07), 955 So. 2d 763, writs denied, 07-1241, 07-1265, 07-1271 (La. 9/28/07), 964 So. 2d 367, 368.  In Duplantier, the Fourth Circuit held that “all claims, both tort and contractual, should be considered at the same time in order to determine the full extent of damages owed to the property owner.”  It also stated that “one trial of all issues” serves the interests of judicial efficiency, was the “most plausible interpretation of the statute,” and noted that the bifurcation of trials requires the consent of the parties under Louisiana Code of Civil Procedure articles 1562 and 1736.  The Third Circuit in Germany agreed with the court’s reasoning in Duplantier and held that the trial court must resolve all the issues in the matter before it is referred to the LDNR.

  For another case involving the same issue of a bifurcated trial under Act 312, see Bernard v. BP America Production Company, 2007-1249 (La. App. 3 Cir. 4/2/08), — So. 2d –.