future-focused

Texas Supreme Court to Hear Miesch Case

4 minute read

 

On February 13, the Texas Supreme Court will hear arguments in a case involving important issues to the Texas oil and gas industry, including whether or not Texas recognizes an independent private cause of action for waste based on violations of Texas conservation laws and whether an oil and gas lessee commits waste by plugging abandoned wells with minerals remaining in the reservoir. The Court will also hear arguments on the applicability of the discovery rule and fraudulent concealment to claims by oil and gas lessors.

Liskow & Lewis attorney Butch Marseglia submitted an amicus curiae brief on behalf of The Texas Oil & Gas Association. For a copy of TxOGA’s brief, click on the following link Amicus Curiae Brief of TXOGA – Received: 10/16/2006 .

The Miesch case, set for argument on February 13, is one of two related cases decided by the Corpus Christi Court of Appeals last year.

A.   Emerald Oil & Gas v. Exxon Corp., No. 13-99-757, 2005 WL 167051 (Tex.App.—Corpus Christi Jan. 27, 2005, pet. filed No. 05-0729; Exxon Corporation and Exxon Texas, Inc. v. Emerald Oil & Gas Company, L.P., In the Supreme Court of Texas)

Emerald, a subsequent lessee of Exxon, sued Exxon for wrongful conduct “in the development and abandonment of oil and gas wells in the Mary Ellen O’Connor Field.” Specifically, Emerald asserted claims for (1) breach of regulatory duty to plug a well properly; (2) breach of regulatory duty to refrain from committing waste; (3) negligence per se based on alleged violations of various Natural Resources Code sections and Railroad Commission regulations; (4) tortious interference with economic opportunity; (5) fraud; and (6) negligent misrepresentation. The royalty owners intervened and asserted claims against Exxon for, among others, common law waste, statutory waste, negligence per se, tortious interference, and failure to develop. The trial court granted summary judgment for Exxon on Emerald’s first three claims and severed the remaining claims, and Emerald appealed the summary judgment. Emerald’s remaining claims were tried with those of the royalty owners (see next section).

The Corpus Christi court of appeals reversed the summary judgment and remanded the case to the trial court. Exxon’s Petition for Review was filed September 9, 2005, arguing that:

1.  Emerald lacks standing, as subsequent acquirer of the leases, absent an express assignment of specific causes of action;
2.  Natural Resources Code § 85.321 does not create any new private causes of action; and
3.  Violations of the Natural Resources Code do not support a claim of negligence per se.

For copies of the Supreme Court briefs currently on file in Emerald case, click on the following link http://www.supreme.courts.state.tx.us/ebriefs/files/20050729.htm.

B. Exxon Corp. v. Miesch, 180 S.W.3d 299 (Tex.App.—Corpus Christi 2005, pet. filed No. 05-1076; Exxon Corporation and Exxon Texas, Inc. v. Emerald Oil & Gas Company, L.P., and Laurie T. Miesch; In the Supreme Court of Texas)

Emerald’s remaining claims, along with those of the royalty owners, were tried to a Jury, but the court directed a verdict in favor of Exxon on Emerald’s claims. On the remaining claims, the Jury found in favor of the royalty owners on all issues submitted. Thus, at the end of the day, Emerald took nothing from Exxon, but the Jury found:

1. Exxon committed waste on “property or production” in which the royalty owners “owned an interest”; 2. Exxon failed to act as a reasonably prudent operator in plugging the wells;
3. The royalty owners discovered, or in the exercise of due diligence should have discovered, the waste on January 24, 1995;
4. Exxon failed to comply with the development provisions in the lease;
5. Exxon fraudulently concealed its failure to develop; and
6. In February 1999 the royalty owners knew, or in the exercise of reasonable diligence should have known, that Exxon fraudulently concealed its failure to develop.

The Jury awarded the royalty owners:

1. $5 million for (a) the cost to drill new wells, (b) the value of the minerals that could not be recovered, and (c) the loss of bonus payments;
2. $10 million in punitive damages; and
3. $3.6 million for Exxon’s breach of contract, as the amount the royalty owners “would have received for the minerals produced” had Exxon fully developed the leases, less (a) the costs of operation and production and (b) any royalty received from Emerald.

The Corpus Christi court of appeals affirmed the judgment in favor of the royalty owners and reversed the trial court’s directed verdict on Emerald’s causes of action for fraud, negligent misrepresentation, and tortious interference. Exxon’s Brief argues that:

1. A claim that an operator’s method of plugging an abandoned well made reentry to produce anr remaining hydrocarbons more difficult is not the type of claim to which the discovery rule applies;
2. The Discovery Rule, if applicable, cannot save the stale tort claims because the royalty owners and Emerald knew about facts giving rise to their claims;
3. The court of appeals’ “rescue” of the breach of lease coalm violates the Court’s fraudulent concealment precedent by suspending limitations until all the specifics of the claim are revealed;
4. The court of appeals’ holding regarding what constitutes evidence of fraudulent intent creates ad limitless class of plaintiffs to whom persons who file public records may be liable;
5. Without regard to limitations, the “waste” claim fails because tort liability may not be imposed when the allegedly wrongful conduct is the subject of the parties’ contract;
6. By upholding the waste claim, the court of appeals has created a new common law cause of action for waste, never before recognized in Texas oil and gas law;;
7. The court of appeals’ opinion creates a new statutory private cause of action for waste under section 85.321 of the Natural Resources Code;
8. Even if it were not time-barred, the breach of lease claim fails as a matter of law because Exxon complied with the express terms of the leases’ development clauses;
9. The definition of “waste” submitted to the Jury is fatally defectiv;
10. The court of appeals relied on legally insufficient evidence to uphold the multimillion dollar damages judgment; and
11. Even if not time-barred, Emerald’s negligent misrepresentation and tortious interference claims fail as a matter of law because no evidence supports critical elements of each claim.

For copies of the Supreme Court briefs currently on file in the Miesch case, click on the following link http://www.supreme.courts.state.tx.us/ebriefs/files/20051076.htm.

Additional Insured Cannot Rely On Certificate of Insurance

less than a minute

Contributed by  Andrew Wooley

In Via Net v. TIG Insurance Co., the Supreme Court of Texas recently concluded it was not reasonable for a party to believe it was an additional insured under another party’s commercial general liability policy, based only on a certificate of insurance provided by the other party’s insurance broker. After noting that certificates of insurance generally do nothing more than acknowledge the existence of a policy and its general terms, and do not specify “the numerous limitations and exclusions that often encumber such policies,” the court stated “those who take such certificates at face value do so at their own risk.”

While the specific legal issue in Via Net was whether a party’s reliance on a certificate of insurance provided by another party’s insurance broker was sufficiently reasonable to toll the statute of limitations until the aggrieved party learned it was not, in fact, an additional insured, the lesson in the case for those who intend and expect to be named as an additional insured under someone else’s insurance policy is to require verification of that beyond a mere certificate of insurance, e.g., copies of the policy and the endorsement adding the party as an additional insured. The opinion in Via Net is available on Westlaw at 2006 WL 3759389 and is also available on the Texas Supreme Court’s web site at http://www.supreme.courts.state.tx.us/historical/2006/dec/050785.htm.

Additional Insured Cannot Rely On Certificate of Insurance

less than a minute

 

Contributed by  Andrew Wooley

In Via Net v. TIG Insurance Co., the Supreme Court of Texas recently concluded it was not reasonable for a party to believe it was an additional insured under another party’s commercial general liability policy, based only on a certificate of insurance provided by the other party’s insurance broker. After noting that certificates of insurance generally do nothing more than acknowledge the existence of a policy and its general terms, and do not specify “the numerous limitations and exclusions that often encumber such policies,” the court stated “those who take such certificates at face value do so at their own risk.”

While the specific legal issue in Via Net was whether a party’s reliance on a certificate of insurance provided by another party’s insurance broker was sufficiently reasonable to toll the statute of limitations until the aggrieved party learned it was not, in fact, an additional insured, the lesson in the case for those who intend and expect to be named as an additional insured under someone else’s insurance policy is to require verification of that beyond a mere certificate of insurance, e.g., copies of the policy and the endorsement adding the party as an additional insured. The opinion in Via Net is available on Westlaw at 2006 WL 3759389 and is also available on the Texas Supreme Court’s web site at http://www.supreme.courts.state.tx.us/historical/2006/dec/050785.htm.

Supreme Court Denies Relief to Oil Companies

2 minute read

In BHP America Petroleum Co. v. Burton, 549 U.S. — (2006), the Supreme Court resolved a legal issue that has been at the center of federal royalty litigation for twenty years:  viz., whether 28 U.S.C. § 2415(a), which imposes a 6-year statute of limitations for Government “every action for money damages … founded upon any contract,” applies to administrative royalty payment orders issued by the Minerals Management Service (MMS). The Court held that it does not.  Read more . . .

In 1996, MMS issued administrative payment orders to federal gas lessees that directed that oil royalties for the period 1989 to 1996 “should be calculated based not on the value of the gas at the well, but on the value of the gas after it was treated to meet the quality requirements for introduction into the Nations’ mainline pipelines.”  The federal lessees appealed the MMS orders, not only challenging the merits of MMS’s royalty claim, but also arguing that the Government’s action was barred as to those royalties allegedly due more than six years before the MMS issued its order.  Consistent with scores of prior Interior rulings, the Assistant Secretary of the Interior eventually denied the lessees’ appeal and held that the statute of limitations in section 2415(a) did not apply to administrative proceedings.  On appeal, the D.C. Circuit held that section 2415(a) did not apply to administrative actions such as MMS’s royalty payment order.  Amoco Production Co. v. Watson, 410 F.3d 722 (D.C. Cir. 2005).  Because the Tenth Circuit had ruled to the contrary, see OXY USA, Inc. v. Babbitt, 268 F.3d 1001 (10th Cir. 2001) (en banc), the D.C. Circuit’s decision created a split in the circuits, which supplied the basis for the Supreme Court’s review.

 

The Supreme Court affirmed the D.C. Circuit’s decision, holding that section 2415(a) does not apply to administrative orders to pay royalties.  The Court found the statutory text clear. Because section 2415(a) does not bar the Government’s action unless the “complaint” is filed more than six years after the right of action accrues or within one year after a final administrative decision has been rendered, the Court found that nothing in the text of section 2415(a) suggested that Congress intended the six-year statute of limitations to apply to administrative — as opposed to judicial — proceedings. 

 

The Court similarly rejected the lessees’ argument that an administrative payment order constitutes a “complaint” for purposes of section 2415(a), finding that such orders lack the essential attributes of a “complaint” as that term is well-understood and well-defined in the law.  The Court also found that the general rule that statutes of limitations are construed narrowly against the government erased all further doubts as to the meaning of section 2415(a).

Supreme Court Denies Relief to Oil Companies

2 minute read

 

In BHP America Petroleum Co. v. Burton, 549 U.S. — (2006), the Supreme Court resolved a legal issue that has been at the center of federal royalty litigation for twenty years:  viz., whether 28 U.S.C. § 2415(a), which imposes a 6-year statute of limitations for Government “every action for money damages … founded upon any contract,” applies to administrative royalty payment orders issued by the Minerals Management Service (MMS). The Court held that it does not.  Read more . . . 

In 1996, MMS issued administrative payment orders to federal gas lessees that directed that oil royalties for the period 1989 to 1996 “should be calculated based not on the value of the gas at the well, but on the value of the gas after it was treated to meet the quality requirements for introduction into the Nations’ mainline pipelines.”  The federal lessees appealed the MMS orders, not only challenging the merits of MMS’s royalty claim, but also arguing that the Government’s action was barred as to those royalties allegedly due more than six years before the MMS issued its order.  Consistent with scores of prior Interior rulings, the Assistant Secretary of the Interior eventually denied the lessees’ appeal and held that the statute of limitations in section 2415(a) did not apply to administrative proceedings.  On appeal, the D.C. Circuit held that section 2415(a) did not apply to administrative actions such as MMS’s royalty payment order.  Amoco Production Co. v. Watson, 410 F.3d 722 (D.C. Cir. 2005).  Because the Tenth Circuit had ruled to the contrary, see OXY USA, Inc. v. Babbitt, 268 F.3d 1001 (10th Cir. 2001) (en banc), the D.C. Circuit’s decision created a split in the circuits, which supplied the basis for the Supreme Court’s review.

 

The Supreme Court affirmed the D.C. Circuit’s decision, holding that section 2415(a) does not apply to administrative orders to pay royalties.  The Court found the statutory text clear. Because section 2415(a) does not bar the Government’s action unless the “complaint” is filed more than six years after the right of action accrues or within one year after a final administrative decision has been rendered, the Court found that nothing in the text of section 2415(a) suggested that Congress intended the six-year statute of limitations to apply to administrative — as opposed to judicial — proceedings. 

 

 

The Court similarly rejected the lessees’ argument that an administrative payment order constitutes a “complaint” for purposes of section 2415(a), finding that such orders lack the essential attributes of a “complaint” as that term is well-understood and well-defined in the law.  The Court also found that the general rule that statutes of limitations are construed narrowly against the government erased all further doubts as to the meaning of section 2415(a).

Pipeline Canal Class Action Dismissed

2 minute read

In Barasich v. Columbia Gulf Transmission, et al., Judge Sarah Vance of the Eastern District of Louisiana dismissed a suit in which plaintiffs claimed that oil and gas production and pipeline companies’ activities in South Louisiana marshes contributed to the destruction wreaked by hurricanes Katrina and Rita. The plaintiffs alleged that dredging of pipeline canals and wellsite locations damaged the marshland, thereby weakening a protective barrier against storm surge and increasing the storm damage suffered by citizens of South Louisiana. Judge Vance held that the complaint failed to state a claim under the Louisiana obligations of neighborhood or Louisiana tort law, finding plaintiffs’ claims to be too “attenuated because they are suing for hurricane damage from storm surge allegedly magnified by coastal erosion caused by the canals, not for a direct loss of acreage due to erosion.” 

 

The Barasich case was filed as a class action on behalf of residents of 17 South Louisiana parishes who suffered hurricane damage. The suit named 11 individual defendants as representatives of two defendant classes, a “pipeline class” and an “exploration & production class.” The complaint alleged that canals dredged by defendants, and defendants’ failure to maintain those canals, caused the destruction of over a million acres of coastal wetlands. But for this damage, plaintiffs alleged, an intact marsh would have provided a buffer that would have greatly diminished the storm surge and winds. An amended complaint sought to hold the defendant classes liable for all costs of restoration of the coastal marshes.

 However, Judge Vance found plaintiffs’ Louisiana law claims to be legally unsupportable and dismissed the suit for failure to state a claim. First, she determined that the obligations of neighborhood embodied in Civil Code article 667 do not extend to persons whose properties are distant from each other. Rather, the statute creates duties only “between adjacent owners, or properties that lay physically close to one another.” She also rejected plaintiffs’ tort claims, finding that defendants owed plaintiffs no duty: “For plaintiffs to recover in this matter, they must demonstrate as a matter of law that defendants had a duty to these hundreds of thousands of plaintiffs to protect them from the results of coastal erosion allegedly caused by operators that were physically and proximately remote from plaintiffs or their property.” Likewise, she rejected the plaintiffs’ argument that the defendants’ collective activities were a cause in fact of the damages, finding that tort liability requires proof of individual causation and noting that the Fifth Circuit uniformly rejects theories of market share or enterprise liability.   The opinion is available at 2006 WL 3333797 (E.D. La. Sept. 28, 2006).

 

Pipeline Canal Class Action Dismissed

2 minute read

 

In Barasich v. Columbia Gulf Transmission, et al., Judge Sarah Vance of the Eastern District of Louisiana dismissed a suit in which plaintiffs claimed that oil and gas production and pipeline companies’ activities in South Louisiana marshes contributed to the destruction wreaked by hurricanes Katrina and Rita. The plaintiffs alleged that dredging of pipeline canals and wellsite locations damaged the marshland, thereby weakening a protective barrier against storm surge and increasing the storm damage suffered by citizens of South Louisiana. Judge Vance held that the complaint failed to state a claim under the Louisiana obligations of neighborhood or Louisiana tort law, finding plaintiffs’ claims to be too “attenuated because they are suing for hurricane damage from storm surge allegedly magnified by coastal erosion caused by the canals, not for a direct loss of acreage due to erosion.” 

 

The Barasich case was filed as a class action on behalf of residents of 17 South Louisiana parishes who suffered hurricane damage. The suit named 11 individual defendants as representatives of two defendant classes, a “pipeline class” and an “exploration & production class.” The complaint alleged that canals dredged by defendants, and defendants’ failure to maintain those canals, caused the destruction of over a million acres of coastal wetlands. But for this damage, plaintiffs alleged, an intact marsh would have provided a buffer that would have greatly diminished the storm surge and winds. An amended complaint sought to hold the defendant classes liable for all costs of restoration of the coastal marshes.

 However, Judge Vance found plaintiffs’ Louisiana law claims to be legally unsupportable and dismissed the suit for failure to state a claim. First, she determined that the obligations of neighborhood embodied in Civil Code article 667 do not extend to persons whose properties are distant from each other. Rather, the statute creates duties only “between adjacent owners, or properties that lay physically close to one another.” She also rejected plaintiffs’ tort claims, finding that defendants owed plaintiffs no duty: “For plaintiffs to recover in this matter, they must demonstrate as a matter of law that defendants had a duty to these hundreds of thousands of plaintiffs to protect them from the results of coastal erosion allegedly caused by operators that were physically and proximately remote from plaintiffs or their property.” Likewise, she rejected the plaintiffs’ argument that the defendants’ collective activities were a cause in fact of the damages, finding that tort liability requires proof of individual causation and noting that the Fifth Circuit uniformly rejects theories of market share or enterprise liability.   The opinion is available at 2006 WL 3333797 (E.D. La. Sept. 28, 2006).