LAW

Age-old legal tool poses modern threat for oil and gas

First in a series on the changing landscape of oil and gas law.

When a Texas jury handed down a $3 million verdict this year for a family affected by natural gas drilling, Dan Raichel saw a pattern coming into focus.

Environmentalists had for years sought to slow the breakneck pace of shale development, but sophisticated attempts to challenge regulations or prove contamination had fallen short. And yet, down in Texas, a driller was thwarted by something as simple as nuisance law.

The case centered on Bob and Lisa Parr, who lived atop the Barnett Shale and said they suffered health problems from the air emissions of nearby well sites. The jury found that the emissions disturbed the Parrs' property and constituted a private nuisance (EnergyWire, June 16).

"Nuisance affects the whole fracking debate in a lot of ways," said Raichel, an attorney for the Natural Resources Defense Council. "In a colloquial sense, it's pretty clear that fracking is a nuisance in a lot of these communities."

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In a legal sense, nuisance claims cropping up around the country may prove surprisingly effective at reeling in development. The high-dollar Texas verdict -- which dealt not specifically with fracking but with broader oil and gas operations -- serves as a harbinger of a very litigious future.

To anyone paying attention to the industry, the ripeness of nuisance claims is clear: Horizontal drilling and hydraulic fracturing have unlocked oil and gas in shale formations that sweep across populated areas, bringing production closer and closer to where people live.

"Most oil and gas development, it's been remote," said Michael Mazzone, a Houston-based attorney who represented Aruba Petroleum Inc. against the Parr family. "It's offshore. It's in Alaska. It's up in North Dakota. It's in very, very sparsely populated areas. So you don't have the conflicts that you have in populated areas."

Now, he said, as drillers set up camp across the Marcellus and Barnett shales, people have more to complain about, like the odors, vibrations, noise and light -- all inherent to oil and gas production -- that are suddenly in their backyard.

While lawsuits alleging water contamination have often been derailed by the expensive and heavy burden of linking pollution to drillers, King & Spalding attorney Brannon Robertson says nuisance claims are much easier to support and may resonate more with judges and juries.

"While people have been very focused on the subsurface fracking issues, these cases show there's another aspect to it," said Robertson, who represents industry in Texas. "Certainly because it's on the surface and in the air, I think that it's easier for a plaintiff to articulate that it's causing problems and for a jury to comprehend that."

Unreasonable interference

To be sure, nuisance claims are not a novel legal strategy; they're regarded as everyday risks for any industry working near homes.

The facet of common law has existed for centuries, originally to address, say, foul odors from a neighbor's pig sty. Today, nuisance is much the same, except neighbors now fight over a towering drilling rig, or the flood lights from a fracking operation, or the slew of truck traffic trudging across their rural roads.

"Whether we like fracking or not, we have to say it's a major transformation of what had been a quiet agricultural area into a major industrial area," said Jim O'Reilly, a law professor at the University of Cincinnati.

The extent of that transformation, which certainly varies depending on the site, plays into the nuisance test. Though the law varies state by state depending on precedent set by judges, the test for a claim remains fairly standard: Does an action unreasonably interfere with the enjoyment and use of one's property?

The "reasonable" question is often the deciding factor. How often are vibrations occurring? Did the driller try to make operations blend into the scenery? Is the neighborhood bucolic or more rugged? Judges and juries are given wide clearance for interpretation.

In April, for example, a Fort Worth jury rejected a homeowner's claim that Chesapeake Energy Corp. wells had created a nuisance by contaminating the air. The jury found that the operations were consistent with the surroundings, so Chesapeake's activities were reasonable. A month later, a different jury found that the same wells were a nuisance for a different family who lived just 200 feet closer. Two additional nuisance cases targeting those wells are underway.

In short, a nuisance claim is not a slam-dunk legal strategy. "You can put the same set of facts in front of two different juries, and one will do one thing and one will do another," Robertson said.

In fact, many challenges await plaintiffs who want to bring nuisance claims against oil and gas drillers.

For one, plaintiffs will need a good chance of recovering significant damages to make the suit worthwhile. Because the Parr family was able to collect for health problems, the case raked in a robust $3 million. Many other cases result in paltry awards by comparison. The second Chesapeake case, for example, resulted in a $20,000 verdict.

Complaints may also run aground if they are trumped by state law. O'Reilly pointed to a 2011 case, Natale v. Everflow E. Inc., which found that state law pre-empted a nuisance claim in Warren, Ohio. The state appellate court found that an Ohio drilling permit effectively removed the activity from common law coverage, including nuisance claims.

Finally, and perhaps most significantly, plaintiffs have to overcome the major advantage afforded to mineral estate owners over surface owners.

Part of the uptick in nuisance complaints relates to the prevalence of split estates, the arrangement in which property owners do not own minerals under their land. The mineral estate typically holds priority, so the surface owner must allow the mineral owner to use the surface to access resources underground. That implied right of access does not always play out on friendly terms, leaving surface owners more likely to complain of nuisances.

"If you're a surface owner and you own the mineral rights, you might not mind a truck coming in because in the end, you're going to see some money out of it," Robertson said. "If you don't own the mineral interest, and you basically have to yield to the mineral owner coming in and doing that, it probably sticks in their craw more, and they're not going to see any economic benefit."

What's more, some legal experts argue that surface owners who do not own what's underground have effectively yielded their right to quiet, undisturbed property. As a judge candidly put it in a 1925 Texas case, if a person purchases "premises burdened with the terms of a mineral lease, he is in no position to complain of conditions."

Mazzone, the lawyer in the Parr case, said neighbors to development might have an easier time bringing a nuisance case than direct surface owners. While the surface owners above a mineral estate presumably acquired the land with knowledge of the dominant mineral estate, neighbors are not subject to that implied agreement.

Good neighbors

To avoid nuisance claims, industry has two options: be a good neighbor or get creative.

The neighborly strategy is easy enough: Consult with homeowners and minimize disruptions. Operators can, for example, keep wells as far from homes as possible, use sound barriers, hire contractors with safe driving records and erect fences to hide anything that might be deemed an eyesore. Robertson said operators already do many of these things.

"These companies do work hard to not inconvenience people unnecessarily," Robertson said, "but it gets harder and harder because in some areas, they're working pretty close to where people live, which historically may not have been the case."

Last week, the American Petroleum Institute gave industry a road map for being better neighbors. The community engagement standards aim to help operators approach community members to build credibility and trust.

Karen Moreau, executive director of the New York State Petroleum Council, said adoption of the API standards would not likely prevent lawsuits but would at least curry favor between communities and operators. "There's a tremendous benefit to that and to our companies as a result of that," she said.

For a more ironclad defense against nuisance lawsuits, Mazzone recommends sweetening the pot. Oil and gas developers can approach neighbors of a planned well site and offer a lump sum as compensation for any disturbance.

EQT Corp. did just that when it offered several homeowners $50,000 each for a "nuisance easement" releasing the company from liability for noise, fumes, dust or "other conditions or nuisances which may emanate from or be caused by [EQT's] operations" (EnergyWire, June 5).

But that approach has been sharply criticized by environmentalists and others who say the easement amounts to "hush money" that allows the company to sidestep responsibility for problems at a well site.

Pigs in the parlor

Frequent use of such easements would create problems for critics of the industry who view nuisance law as a useful tool for keeping the industry at bay. But as important as protecting the ability to raise nuisance claims is protecting communities' ability to keep nuisances from happening in the first place, said Raichel, the NRDC lawyer.

That power is zoning, the traditional municipal authority to govern land use by relegating certain activities to certain areas. A 1924 landmark case, Euclid v. Ambler Realty, described zoning as a tool to avoid nuisances, famously advocating for keeping the pig in the sty and not in the parlor.

"What makes fracking so interesting is that other industrial activities tend to happen in more confined locations, and they can be sited in areas that are already industrial," Raichel said. "Fracking is coming into everyone's backyard, and that's sort of unprecedented."

Towns in New York, Pennsylvania, Ohio, Colorado, Texas and elsewhere have faced challenges from industry and state governments who argue that zoning that restricts the oil and gas industry is pre-empted by state laws. Courts in New York and Pennsylvania have upheld local governments' zoning power to avoid nuisances (EnergyWire, July 1), but other disputes are ongoing.

So, will shale drilling ever conform to traditional ideas of nuisance zoning? Raichel acknowledged that it's unclear.

"There's so much unknown about fracking at this point. There may be no sty for this pig," he said. "The law is just beginning to catch up."

In the meantime, Mazzone is planning to appeal the $3 million verdict.

Twitter: @ellengilmer | Email: egilmer@eenews.net

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