A special thanks to Derek Younkers, a soon-to-be 1L at Baylor Law School, who gathered the material for this post.

Those with even a passing acquaintance with the Old Testament know that when the Good Book talks pestilence and destruction, its go-to is a horde of locusts. And so it is with the plethora of lawsuits by states, cities and counties against oil and gas producers claiming catastrophic damages from fossil fuels. Some time ago we reported on City of San Mateo v. Chevron.  There are others.

The causes of action vary from case to case. The common denominator is that the suits are filed in state court and allege only state law claims.  Despite producers’ best efforts, the federal courts have denied federal jurisdiction.

Mayor and City Council of Baltimore v. BP p.l.c.

Baltimore alleges oil company defendants violated state-laws and concealed dangers associated with their fossil fuel products. The defendants removed to federal court. The Fourth Circuit concluded that its appellate jurisdiction only allowed it to review the federal officer removal argument and remanded without considering defendants’ other arguments. The Supreme Court then held that §1447(d) allowed the Fourth Circuit to consider all other arguments put forth by defendants and remanded.

Defendants argued that under the federal removal statutes removal jurisdiction was proper on these eight bases: federal common law, raising of a substantial federal issue, Clean Air Act preemption, federal enclave jurisdiction, original jurisdiction under the Outer Continental Shelf Lands Act, the bankruptcy removal statute, the admiralty jurisdiction statute, and federal officer removal.

The Fourth Circuit rejected all eight arguments and affirmed the district court’s decision to remand the case back to the state court, where it will reside forever.

There are 14 more pending cases. Here they are:

Board of County Commissioners of Boulder County v. Suncor Energy 

The allegations in this 2018 suit are that fossil fuel companies concealed the effects of fossil fuels on climate change and disingenuously marketed their products to the harm of the people living in Boulder County. Defendants removed. The Tenth Circuit affirmed that the case could not be removed under federal officer removal statute. and stated that that statute did not grant the Court appellate jurisdiction to consider defendants’ other grounds for removal. The Supreme Court clarified that when federal officer removal is one of multiple arguments for removal, then, on appeal, the court may look at the merits of the other arguments. The case was remanded.

Six of the bases for removal were the same as in City of Baltimore, and met the same fate.  The Tenth Circuit sent the case back to the state courts where it will also reside forever.

Rhode Island v. Shell Oil Products Co.

This 2018 case against Shell and other oil companies alleges state tort claims. The 1st Circuit, observing the “mind-numbing complexities of federal removal statutes” ruled recently that the case did not satisfy the necessary conditions for federal removal and remanded the case to the state court.

City of Oakland v. BP p.l.c.

The Cities of San Francisco and Oakland sued five fossil fuel companies in September 2017. This case is pending in the North District of California awaiting a decision in light of City of San Mateo.

City & County of Honolulu v. Sunoco LP

The claims here are public nuisance, failure to warn, and trespass. The case is before the 9th Circuit with the defendants claiming that the record in this case supports removal to federal courts in light of San Mateo.

City of Charleston v. Brabham Oil Co.

The claims here are failure to warn, concealment of known hazards, and other state law claims. The case is pending in the District Court of South Carolina awaiting a decision in light of City of Baltimore.

Anne Arundel County v. BP p.l.c.

The County of Anne Arundel asserts that BP and other oil companies violated the Maryland Consumer Protection Act. The case is pending in the District Court of Maryland awaiting a decision in light of City of Baltimore.

City of Annapolis v. BP p.l.c.

The claims here are public nuisance, failure to warn, and other state causes of action. The case is before the U. S. District Court of Maryland awaiting a decision in light of the decision on remand in City of Baltimore.

District of Columbia v. Exxon Mobil Corp.

This suit is for violation of The District’s Consumer Protection Procedures Act. The case is before the U. S. District Court of D.C. awaiting a decision on motions to remand.

Delaware v. DP America Inc.

The State of Delaware alleges oil and gas companies violated its Consumer Fraud Act and asserted common law claims. The case is in the 3rd Circuit where it has been consolidated with City of Hoboken.

City of Hoboken v. Exxon Mobil Corp.

This suit is pending in the 3rd Circuit where it has been consolidated with the State of Delaware.

Connecticut v. Exxon Mobil Corp.

The State of Connecticut sued Exxon and other oil companies alleging similar claims as the myriad of cases above. The case is currently before the 2d Circuit. awaiting a decision on a motion to remand.

Minnesota v. American Petroleum Institute

The State of Minnesota sued the API and oil companies alleging similar claims as other cases above. The case is before the 8th Circuit, where the parties await a decision on motions to remand.

Vermont v. Exxon Mobil Corp.

The State of Vermont sued Exxon and other oil companies in 2021. The case is currently in the District Court of Vermont awaiting a decision on motions to remand.

King County v. BP p.l.c.

King County Washington sued five fossil fuel companies in May 2018 and voluntarily dismissed its claim in September 2021.

A musical interlude about your musical interludes.  You might like an updated version.

 

Those who continue to be horrified by Broadway National Bank, Trustee v. Yates Energy Corp. should be relieved that the result in Endeavor Energy Resources, LP v. Anderson was more equitable. In Yates, the Texas Supreme Court held that Texas Property Code Section 5.029 permitted original parties to a conveyance to execute a correction deed without notice to or joinder of the current owners when the original grantees no longer owned the property.

The sale

In 2003 the Holcomb’s and Tom and Trudy Anderson signed a farm and ranch sale contract in which the Anderson’s were to acquire surface rights only in six tracts of a ranch and Holcomb’s were to reserve the minerals. The parties then signed a general warranty deed, the recitals of which did not comport with the intent to only convey the surface estate.

In 2007 the parties realized their error and executed a correction deed which recited that the parties intended to clarify and replace the original 2003 GWD.  It was specifically stated:

  • the parties ” … intended that all minerals owned by the Holcomb’s were to be reserved …” to the Holcomb’s and
  • “some question has arisen regarding whether the language of the mineral reservation accomplishes this intention.”
  • The 2003 GWD conveyed the surface only.

Trudy did not execute the correction deed because she had passed away.  Tom was executor of Trudy’s estate. Her will established a testamentary trust designating Tom as trustee and sole beneficiary. As trustee Tom had the authority:

  • To manage and handle all of the property passing to such trustee, in trust, as in the trustee’s judgment it may seem best,
  • To invade and use the corpus for his own benefit,
  • To do any and all things necessary for the best interests of the estate,
  • To do all acts of any kind and character in handling such estate.
  • To have all powers conferred under the Texas Trust Act, and
  • His acts would be conclusive and binding upon all persons.
  • His authority as executor of Trudy’s estate was similarly broad.

Section 5.029

The Supreme Court in Yates rejected the argument advanced by Anderson in this case that the current interest owners who were not parties to the original transaction must execute the correction deed. Because Trudy had passed away the court had to determine for purposes of Section 5.029 who is an heir, successor or assign.

The court in Yates said “successor” fills the gap between heirs and assigns, covering entities and legal representatives who succeed an original party other than as an heir or an assign.

Tom’s broad powers as executor and trustee permitted him to execute the 2007 correction deed as Trudy’s sole successor.  He possessed all decision-making authority regarding her estate and Trust assets with the exception of a conveyance of real property held by the Trust. That was not an impediment to execution of a valid correction deed.  A correction deed itself without more does not constitute a sale or conveyance of real property. It simply replaces and is a substitute for the original instrument.

Anderson also asserted that Tom’s signature block did not specifically recite the capacity in which he signed. But the correction deed clearly showed that the parties intended that it bind both Tom’s and Trudy’s interests.

Tom was Trudy’s sole successor within the meaning of Section 5.029. The consents of the children were not necessary.  The correction deed substantially complied with the requirements of Section 5.029.

Your musical interlude, with cowbell and without.

At issue in RKI Exploration and Production LLC v. AmeriFlow Energy Services LLC and Crescent Services, LLC. were two Master Service Agreements.  RKI was the operator of a well in Loving County; AmeriFlow and Crescent were contractors. A sand separator exploded at the well site injuring or killing three workers who worked for another subcontractor. The result was three suits in New Mexico and a mazelike series of indemnity demands, denials, settlements, and judgments, including settlement of one death case for $9.1 million.

To preserve your patience, and mine, let’s focus on the takeaways from this 72-page behemoth of an opinion based on a 10,000-page record.

Grammar lessons

The court defined a phrase common to Master Service Agreements: “arising in connection herewith”. Indemnitees AmeriFlow and Crescent argued that the phrase “encompasses all activities reasonably incident to or anticipated by the principal activity of the MSA, which was oil well operation”. No, it doesn’t. The court determined that the phrase requires a causal connection between the MSA and the claims for which the indemnitee sought indemnity. The scope of work envisioned in the MSA was defined by work orders, and the indemnity could go no further than the scope of work. Continue Reading Texas Court Addresses MSA Indemnity Obligations

Co-author Trevor Lawhorn

SM Energy Co. v. Union Pac. R.R. Co. considers a question frequently asked in Texas suits affecting title: When is a suit a trespass to try title action and not a declaratory judgment action?

The dispute

SM Energy and Union Pacific are parties to three oil and gas leases covering lands in Howard County. Each lease contains the same forum-selection clause providing for exclusive venue in “… Omaha, Nebraska and no other place.”

Union Pacific demanded that SM pay damages for breaching the leases. SM failed to pay in time but later tendered the damages and identified other leases in violation of a most-favored-nations clause. Union Pacific eventually accepted tender of SM’s offer, but maintained that SM owed $5mm+ in liquidated damages.

SM sued Union Pacific in Howard County asserting SM’s ownership of the leasehold estate and claiming that Union Pacific unlawfully dispossessed SM of its right to possession. Union Pacific responded with a motion to dismiss for improper venue, arguing that Omaha was the proper forum, citing the forum-selection clause and Texas’ “major transactions” venue rule (Civil Practice and Remedies Code §15.020).

The trial court granted Union Pacific’s motion. SM appealed and argued that the trial court erred in enforcing the forum-selection clause and erred by finding that Nebraska was a proper forum to litigate the dispute.

The appeal

The Court of Appeals affirmed.

SM asserted that its trespass-to-try-title action could only be litigated in Texas; therefore a Texas court has exclusive subject-matter jurisdiction.  The Court considered the substance of SM’s petition and saw a claim for declaratory judgment to determine SM’s obligations, not trespass-to-try-title. SM pleaded certain elements of trespass-to-try-title but its claims of dispossession were, in substance, dependent on an initial determination that the liquidated damages provision was unenforceable.

Second, the Court disagreed that SM’s claim was a suit to remove a cloud on title. SM could not show that Union Pacific’s claim was invalid or unenforceable, which is a prerequisite to a suit to remove a cloud on title.

Third, the Court disagreed with SM’s contention that enforcement of the forum selection clause would violate Texas’s public policy against piecemeal litigation. For all intents and purposes, the claimant was Union Pacific because Union Pacific is the party asserting that SM breached the leases.

The trial court also erred by finding that Nebraska was a proper forum to litigate the dispute—The 640-acre lease met the requirements of a “major transaction” as described by the venue rule. This question turned on whether the lease evidenced consideration exceeding $1mm for purposes of the statute. The lease failed to state consideration exceeding $1mm, but related documents could be considered as evidence of a major transaction. One week after execution of the lease, Union Pacific confirmed to SM’s predecessor-in-interest that the original lessee paid Union Pacific a lease bonus of $2.4mm. The court considered confirmation to be a separate instrument that was executed at the same time, for the same purpose, and in the course of the same transaction such that the documents could be analyzed together.

Takeaways

  • Courts will look to the substance, not the form, of a party’s pleadings to determine whether a claim is for trespass-to-try title or declaratory judgment.
  • When the issue of dispossession of title is secondary to the determination of the breach or enforceability of a contract, courts may find the case to be for declaratory judgment, not trespass-to-try-title action.
  • The lease and separate documents reflecting payments that relate to the lease may be construed together for purposes of establishing the value of the lease.

RIP Sonny Corleone and Paulie Walnuts.

Co-author Trevor Lawhorn

Non-operators under the 1989 Model Form JOA have been hoping to drive a stake through the dark heart of Reeder v. Wood County Energy, LLC. Bachtell Enterprises, LLC v. Ankor E&P Holdings Corp might be a start. The question was whether the Article V.A. exculpatory clause exonerated the operator who intentionally passed expenses to non-operators without their consent.

The clause did not allow the operator to engage in such activities. The term “activities” is not so broad as to protect an operator such that it can have no liability for breach of any contract, absent willfulness.

Facts

Ankor the operator negotiated with CDM to construct a gas plant and told the non-operators that third-party ownership of the plant would, among other things, “eliminate[ ] the need for the [nonoperators] to provide capital for construction.”

The non-operators approved AFE’s for expenses totaling $385,000. Additional AFE’s would cover certain other expenses. The JOA required non-operator consent for “ .. any single project reasonably estimated to require an expenditure in excess of $50,000.”

Article V.A. required Ankor to [c]onduct its activities …  as a reasonably prudent Operator, … It shall have no liability as Operator … for losses sustained or liabilities incurred, except such as may result from willful misconduct.

A year after the CDM agreement, Ankor told the non-operators that until the plant was paid off CDM would “retain[ ] all plant revenue as credit towards the full operating costs, transfer and fractionation fees, and amortized capital. Any balance due [CDM] is born by the Ownership. The balance … due [CDM] is approximately $1,590,000.” Ankor then sent a JIB totaling $1.6MM. The non-operators refused to pay.

Trial court

Ankor sued the non-operators claiming breach of the JOA for failure to pay the JIBs. Non-operators responded that Ankor breached first by:

  • charging for gas plant construction without consent,
  • withholding revenue without consent or authority,
  • committing non-operators’ gas to CDM without authority,
  • agreeing not to disclose the CDM service agreement, and
  • charging unauthorized attorney’s fees.

The jury found that both Ankor and the non-operators breached the JOAs but Ankor breached first (and its breach was the result of willful misconduct). Both sides were awarded damages by the jury. The trial court awarded damages and attorneys’ fees to Ankor and a take-nothing judgment against the nonoperators.

The appeal

The exculpatory clause did not absolve Ankor of liability for failing to obtain consent for charges over $50,000. Other clauses were a factor in the holding, for example:

  • imposing individual liability for performance of each party’s obligations, and
  • prohibiting Ankor from withholding oil revenues to reimburse costs in the absence of a non-operator delinquency.

In response to Ankor’s argument that “activities” should be construed broadly to include even intentional breaches of contract that do not rise to the level of willful misconduct, non-operators countered that “Ankor’s interpretation of the exculpatory provision turns [it] into a provision that allows the operator to impose liability on the Non-Operators when it is intended only to be a shield to the Operator’s liability.”

The clause was substantially similar to the one in Reeder in which the SCOTX held that the term “activities” broadened the scope of the clause to include actions under the JOA beyond operations. (The 1982 form protects the operator’s “operations”; the 1989 protects “activities”.) InReeder the operator was shielded from liability for

The appellate court refused to extend Reeder to excuse Ankor’s willful misconduct. Ankor could not use the exculpatory clause offensively to impose liabilities on non-operators that Ankor knowingly incurred without consent. The non-operators were excused from their payment obligations. Judgment for Ankor was reversed.

Your musical interlude, as you ease back to work.

Co-author Carolina Cuppitelli*

The question presented in Aaron v. Fisher et al: Did mineral deeds bestow separate property upon the grantees by gift, or did they convey a community property interest to the grantees and their spouses by sale for consideration?

Why was the question important? A gift is the grantee’s separate property; a sale is community property if the grantee is married.

In 1971, Lilly Parker conveyed to each of her six children, including W. T. and Chester, an undivided 1/12 interest in minerals in land in Glasscock County, Texas. Each deed recited consideration and referred to the conveyance as “this sale.”

There followed a series of intestate successions, details of which are more tedious than the entire first chapter of the Gospel of Matthew and not significant for our discussion. Among Lilly’s descendants were Aaron, the appellant, and the Elams and the Fishers, the appellees. Pioneer, relying on an affidavit of death and heirship from Aaron and a division order signed by him, paid Aaron royalties that Pioneer credited to the mineral interest originally conveyed from Lilly.

The conveyances were sales for consideration

The Court held that the 1971 deeds conveyed the mineral interests by sale for consideration and not by gift. The deeds expressly referred to the conveyance as a “sale” and recited a purported consideration of $10.00. The Court declared that the plain language of the unambiguous deeds indicated that the parties intended for the conveyances to be sales for consideration. It follows, then, that the mineral interests became the community property of W.T. and Chester and ultimately passed to their spouses. Had the transaction been a gift, the minerals would have passed to their sister, Aaron’s aunt. Did Lilly intend a sale? We suspect not in this mother-to-children transaction, but the plain language of the document required the Court to call it a sale.

Money Had and Received

The trial court granted the Fishers’ claim for money had and received. That remedy is a form of equitable relief to prevent unjust enrichment when the defendant holds money that rightly belongs to the plaintiff. The Fishers prevailed because they established that the royalty payments Aaron received from Pioneer, in equity and good conscience, belonged to them.

Takeaways

First, in any document transferring property is the importance of accurately stating the parties’ intent. Perhaps Lilly intended to give, not sell, the mineral interests to her children, but because of the express language of the deed the court was left with little choice but to declare the conveyance a sale. Had the scrivener clearly stated that Lilly wanted to gift her interests to her children, the result would have been different.

Second, make a will, even though you are currently immortal and therefore don’t need one, and you might have to pay a lawyer. Fail to accomplish this modest task and upon your transition to the hereafter your loved ones will curse you for your indolence and lack of foresight and your memory will be diminished from the dearly departed to the just plain departed. A mournful legacy indeed, but you’ll be dead so maybe you don’t care.

Your musical interlude.

*Carolina is a Gray Reed summer associate and will soon begin her third year at SMU law school.

Author Ethan Wood

A pipeline company condemning property of a governmental entity? That’s something you don’t see every day. Score a win for “big pipe” against “big government”. In Harris County Fresh Water Supply District No. 61 v. Magellan Pipeline Company, LP and V-Tex Logistics, LLC, a special purpose district unsuccessfully argued that it had governmental immunity from a pipeline condemnation suit.

Background

Magellan and V-Tex are pipeline companies who entered into an agreement to construct a pipeline for refined petroleum products. One of the parcels that needed to be acquired for the project was a 30-acre tract of land owned by Harris County Fresh Water Supply District used for a stormwater-detention pond. The parties entered into negotiations for an easement in late 2017 but could not reach an agreement. Eventually, an idea was floated to make an initial payment and resolve issues related to additional compensation in a condemnation proceeding. The pipeline companies’ counsel sent an email to the district’s counsel summarizing the proposal, to which the district’s counsel responded, “Very good. Thank you.”

The Condemnation Proceedings

The pipeline companies commenced condemnation proceedings shortly thereafter. The parties executed an agreement providing for partial settlement, setting out the terms for payment (i.e., an initial payment of approximately $500,000 and additional compensation as awarded) and providing that the district would not contest the condemnation proceedings. At the administrative portion of the proceeding, the appointed special commissioners assessed that the additional compensation should be $160,000. At the judicial portion of the proceeding, the district objected, arguing that the property was already devoted to an existing public use and that the $160,000 award was not adequate compensation. After summary judgment and a trial as to remaining fact issues, judgment was entered for the pipeline companies. The companies would have their easement and the district would receive the initial payment and the additional compensation as assessed by the special commissioners.

Governmental Immunity Arguments

The district appealed, arguing first that it enjoyed immunity from condemnation suits as a subdivision of the state. Generally, there are two situations in which a governmental entity may not be immune from suit: legislative waiver and judicial abrogation. Legislative waiver occurs when the legislature consents to suits against a governmental entity. Judicial abrogation involves modification of the common law concepts of sovereign immunity due to the conduct of the governmental entity or when a governmental entity voluntarily engages in litigation.

In this instance, the court of appeals found that the district’s voluntary participation in the condemnation proceeding was an abrogation of its right to claim governmental immunity. Agreeing to the concept by email (“Very good. Thank you.”) and entering into an agreement for partial settlement “clearly indicated that [the district] was contractually agreeing to participate in the condemnation proceeding.”

Additional Arguments

The district also argued that the pipeline company had not presented sufficient evidence of its common-carrier status (required for condemnation) and that the district’s use of the tract was more important the pipeline companies’ proposed use. The court ultimately held that these issues were waived by the district when it agreed not to contest the proceeding. The trial court ruling was affirmed.

This week’s musical interlude

If you administer or advise on master service agreements, or for that matter any other contract that requires written notice, this post by my Gray Reed partner Joe Virene is essential reading:

Texas Supreme Court: Actual Notice Does Not Satisfy Written Notice Requirement

In short, the Supreme Court of Texas reversed a jury verdict in favor of a construction project owner because the owner’s notice of termination to the contractor did not comply with the written notice requirement of the parties’ contract.

Your musical interlude.

 

 

 

Co-author Brittany Blakey

Recall our recent post on Carl v. Hilcorp Energy Company from the U.S. District Court for the Southern District of Texas discussing the lessee’s royalty obligations on gas used off the premises in a market-value lease. See now, Fitzgerald v. Apache Corporation: Different judge; same district; similar facts, lease provisions, and contentions; same skunk at the royalty owner’s garden party; semi-similar reasoning.

The issue was whether Apache was paying royalty on the correct amount of gas used off-lease.

Fitzgerald conceded that whether gas is sold or used off-lease, her royalty was based on the market value, which requires the deduction of PPC’s. However, she was unable to explain how she could both be owed royalties on gas consumed in the post-production process and receive a royalty payment at market value for gas that is sold.

Fitzgerald conceded that her royalty payment for gas used off-lease would be subject to deductions. But if all gas used off-lease is consumed in PPC’s for gas that is sold, there is no amount of remaining gas used for which a royalty payment could be calculated. Therefore, Fitzgerald failed to explain how the gas consumed in the process could have a market value greater than zero. Said the court, she needed to allege:

  • some amount of gas used off-lease,
  • for which the market value amounts to more than zero,
  • for which, when properly accounted, she would be entitled to a net gain of royalty payment.

Fitzgerald only alleged that Apache deducted PPC’s, and that Apache deducted costs that it was permitted to deduct from the market value of gas sold; thus, she did not allege that Apache underpaid her royalties for gas sold or used off the lease.

Without allegations to support that Fitzgerald was underpaid royalties, Fitzgerald failed to state a claim for breach. Even if her allegations were sufficient to state such a claim, she did not allege actual damages (an essential element of a breach of contract claim) resulting from the breach.

A musical interlude for the Carl’s, Fitzgerald’s, and others in the same juridical boat.

Co-author Brittany Blakey

In City of San Mateo, et al v. Chevron Corporation, et al, six California jurisdictions sued 13 energy company defendants for global warming-related claims.

The question in this round was whether the federal district court was wrong in remanding the suit to state court after it had been removed to federal court by the defendants. The district court was correct. That court lacked subject matter jurisdiction under any of the grounds asserted by the defendants.

The court received amicus curiae briefs from many different pro- and anti-fossil fuel organizations and jurisdictions. This post is not a report on the nuances of the removal and remand process, but rather to describe the nature of the lawsuit, which is similar to others against energy companies.

The allegations are that the following actions of the energy companies “ … is a substantial factor in causing the increase in global mean temperature and consequent increase in global mean sea surface height.”:

  • “extraction, refining and/or formulation of fossil fuel products;
  • introduction of fossil fuel products into the stream of commerce;
  • wrongful promotion of the fossil fuel products;
  • concealment of known hazards associated with use of these products; and
  • failure to pursue less hazardous alternatives available to them … “

The plaintiffs allege that they ”have already incurred and will foreseeably continue to incur, injuries and damages because of sea level rise caused by [the energy companies’] conduct.” Among other examples of damage, they cite:

  • flooding that causes injury and damages to real property and its improvements;
  • flooding that prevents the free passage on, use of, and normal enjoyment of real property or permanently [destroys] it;
  • Surfers Beach near the city of Half Moon Bay has lost 140 feet of the accessible beach since 1964 due to erosion which has been exacerbated and substantially contributed to by sea level rise and increased extreme weather;
  • infrastructural repair and reinforcement of roads and beach access.

The causes of action (all based on California state law):

  • public and private nuisance,
  • strict liability for failure to warn,
  • strict liability for design defects,
  • negligence,
  • negligent failure to warn, and
  • trespass.

The energy companies removed because the claims:

  • raised disputed and substantial federal issues,
  • were preempted by federal law,
  • arose on “federal enclaves”,
  • arise out of actions and operations on the outer continental shelf,
  • arise from actions taken pursuant to a federal officers’ directions,
  • are related to bankruptcy cases, and (one would think),
  • “get us the hell away from the wrath of a ‘fair and impartial’ local California judge and jury”.

All were unsuccessful. As the courts are fond of saying, “The plaintiff is master of his pleadings.”

This round is over; expect the case to be aggressively contested for years to come.

Your musical interlude