United States: Oil Field Contamination Award Upheld

Last Updated: May 15 2017
Article by Charles Sartain

Forest Oil Corporation v. El Rucio Land and Cattle Inc. et al deserves your attention for four reasons:

  • You won't see another one involving damage to a rhinoceros pen.
  • It confirms that the Texas Railroad Commission does not have exclusive or primary jurisdiction over private claims for environmental contamination. Welcome to the courthouse.
  • The South Texas redistributionist approach to civil justice includes arbitrations.
  • For once, the Texas Supreme Court declined to eviscerate a multi-million dollar plaintiff victory.

The set up

Mr. McAllen and his family control the 27,000+ acre McAllen Ranch (think McAllen, Texas) through various entities. Forest had contractual obligations arising out of a 1990's settlement agreement:

  • not to bring hazardous material on the property,
  • to remove hazardous material placed on or released thereon,
  • to comply with all laws,
  • perform remedial work where necessary, and
  • not dispose of hazardous materials on the surface.

The family sued for breach of contract, environmental contamination, improper disposal of hazardous materials, and "malicious donation of contaminated pipe". Among other damages was the rhinoceros pen, and McAllen blamed donated pipe for a sarcoma that caused him to lose his leg.

The RRC referred Forest to its voluntary Operator Cleanup Program, but has yet to approve Forest's final remediation plan. An arbitration panel awarded the families $21.7 million in damages and attorneys' fees, $500,000 for exemplary damages, and to Mr. McAllen individually $500,000 for personal injury. The panel also made several declarations, all burdensome and unfavorable to Forest.

One out – the RRC does not have exclusive jurisdiction

The court disagreed with Forest's argument that the RRC has exclusive jurisdiction over common-law contamination claims.

An agency's jurisdiction is exclusive when the legislature gives that agency alone the authority to make the initial determination in a dispute. Ordinarily when the agency has exclusive jurisdiction a party must exhaust all administrative remedies before seeking judicial review. But abrogation of a common-law light is disfavored and requires clear repugnance between the common law cause of action and the statutory remedy. Absent a clear indication, the RRC did not have exclusive jurisdiction.

Arguably, the Water Code the Health & Safety Code, and the Natural Resources Code each ceded to the RRC sole responsibility over activities related to McAllen's claims. Mainly because those statutes address only inter-agency jurisdictional questions, the court disagreed.

Also, the court rejected Forest's argument that landowners seeking remediation both from the RRC and the courthouse can recover twice for the same injuries. That is one for the legislature, not for the court.

Two outs  – the RRC does not have primary jurisdiction

If a state agency has primary jurisdiction the trial court should abate. Primary jurisdiction allocates power between courts and agencies when both have authority to make initial determinations in a dispute. Under this doctrine trial courts should allow the administrative agency to initially decide an issue when the agency is typically staffed with experts trained in handling the complex problems in the its purview and great benefit is derived from an agency's uniform interpretation of its regulations. To the contrary, courts and juries may reach different results under similar fact situations.

But the doctrine doesn't apply to claims that are inherently judicial in nature, such as trespass, negligence, negligence per se. The RRC's primary jurisdiction not so broad as to deprive courts of jurisdiction merely because the Commission might have jurisdiction to determine some facts related to the controversy.

RRC regulations and orders regarding remediation do not supplant Forest's common-law duties in the agreement which do not implicate RRC jurisdiction or regulation. McAllen's claims are inherently judicial; the doctrine of primary jurisdiction does not apply.

Three outs – "runaway " arb award survives  

The arbitration panel was bitterly divided (the dissent was 40 angry pages). The court held that the award could not be vacated for one arbitrator's evident partiality and the panel's manifest disregard of the law. No surprise there.

Inning over, ballgame!

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