SAFE PIPES Act: 2016 Legislation Affecting PHMSA

President Obama signed the Protecting our Infrastructure of Pipelines and Enhancing Safety Act or the SAFE PIPES Act into law on June 22, 2016.  The Safe Pipes Act reauthorizes the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) through 2019 as well as its associated programs, including the one-call notification program, the pipeline integrity program, and state damage prevention programs.  (PHMSA’s authorization previously expired in 2015.)  Also, the SAFE PIPES Act authorizes several initiatives and studies to strengthen existing safety procedures and programs; invites States with a pipeline safety program certification, at their request, to participate in the inspection of interstate pipeline facilities; and requires the U.S. Department of Transportation to analyze the potential for leaks to occur at underground natural gas storage facilities in the United States, similar to the Aliso Canyon gas leak in southern California in 2016.  Importantly, the SAFE PIPES Act mandates the PHMSA provide a report to Congress within eighteen months studying the risks and safety recommendations for existing hazardous liquid pipelines.  PHMSA’s findings have the potential to increase inspection, monitoring, and repair requirements for liquid pipelines, especially for the United States’ aging pipeline infrastructure.

The full text of the SAFE PIPES Act can be found here.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue.  By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site.  The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Texas Supreme Court Rules Oil and Gas Producer Not Entitled to Sales Tax “Manufacturing Exemption”

On June 17, 2016, the Texas Supreme Court ruled that an oil and gas producer (“Southwest”) was not entitled to a statutory exemption from sales taxes on its purchases of casing, tubing and pumps used in the production of oil and gas (the “Equipment”).

At issue in Southwest Royalties, Inc. v. Hegar was whether the Equipment qualifies under the so-called “manufacturing exemption” found in Section 111.104(a)(2) of the Texas Tax Code,  which exempts:

tangible personal property directly used or consumed in or during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary or essential to the manufacturing, processing, or fabrication operation and directly makes or causes a chemical or physical change to:

(A) the product being manufactured, processed, or fabricated for ultimate sale; or

(B) any intermediate or preliminary product that will become an ingredient or component part of the product being manufactured, processed, or fabricated for ultimate sale[.]

Upon being denied a tax refund, Southwest sued the Comptroller and the Attorney General (the “State”), asserting that the Equipment qualified for the exemption because it is necessary or essential to the “processing” of hydrocarbons as they are extracted from the reservoir and brought to the surface.  Specifically, Southwest contended that it processed the hydrocarbons by creating pressure and temperature changes as it brought the minerals to the surface, which resulted in the hydrocarbons being converted from a liquid to a gaseous state and vice versa.  The State contended that bringing minerals to the surface does not constitute “manufacturing,” and put on evidence to show that the phase changes identified by Southwest were the result of natural changes in pressure in temperature and were not caused by Southwest’s equipment.  In other words, it was “undisputed that hydrocarbons undergo physical changes as they move from underground reservoirs to the surface; the disagreement [was] about the role [the Equipment] play[ed] in those changes.”

The trial court ruled for the State upon finding that, while physical changes do occur to hydrocarbons while they are extracted from the ground and lifted to the surface, those changes were directly caused by temperature and pressure changes as the hydrocarbons moved upward toward the surface, rather than by the Equipment, which was an indirect cause of, and merely incidental to, those physical changes.  Therefore, the Equipment did not qualify for the exemption.

The Texas Supreme Court rejected the State’s request for deference to the Comptroller’s interpretation of Section 111.104(a)(2), confirming that agency deference is appropriate only in the case of ambiguous statutes.  In finding the statute unambiguous, the Court sided with Southwest in holding that the term “‘processing’ includes matters outside the confines of ‘manufacturing,’” and is not merely “encompassed within ‘manufacturing,’” as the State argued.  Thus, the Court found the exemption applicable to non-manufacturing activities that otherwise meet the definition of “processing” or “fabrication.”  Nevertheless, the Court did adopt the Comptroller’s definition of “processing” as found in 34 Tex. Admin. Code § 3.300(a)(10):  “The physical application of the materials and labor necessary to modify or change the characteristics of tangible personal property.”

The Court ultimately found the exemption inapplicable to Southwest’s Equipment on the grounds that the Equipment did not “process” the hydrocarbons (i.e., did not “modify or change the characteristics” of the hydrocarbons).  In so ruling, the Court expressly noted that Southwest did “not challenge any of the trial court’s findings of fact” or “the evidence supporting those findings,” which showed that the phases changes resulted from pressure and temperature changes.  According to the Court, “[n]o evidence identified any way Southwest’s equipment acted upon the hydrocarbons to cause a modification or change other than by being the vehicle through which they exited the underground formation and traveled to the surface.”  Instead, “[t]he changes in the substances were caused not by the application of equipment and materials to them, but by the natural pressure changes that occurred as the hydrocarbons traveled from the reservoir through the casing and tubing to the surface.”  Thus, because the Equipment was not used to “process” or directly cause the changes to the hydrocarbons, Southwest was not entitled to the exemption.

Liskow & Lewis attorneys Butch Marseglia and Jillian Marullo submitted an amicus brief in Southwest Royalties on behalf of EOG Resources, Inc.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue.  By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site.  The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Tightening the Timeline for Original Condition: the First Circuit Denies Writ from Ruling Applying Subsequent Purchaser Doctrine to Dismiss Claims Against a Mineral Servitude Owner

In the watershed Corbello[1] decision, the Louisiana Supreme Court affirmed a $33 million award—the cost to restore property valued at $108,000 to its “original condition” after it was damaged by oil and gas operations.  If Corbello pressed the accelerator on “legacy” litigation, Eagle Pipe tapped the brakes.

The Louisiana Supreme Court’s decision in Eagle Pipe & Supply v. Amerada Hess Corp.[2]  held that a landowner does not have a claim for property damage that occurred before his ownership (absent an assignment or subrogation to that right from the seller).  As a practical consequence of Louisiana’s long oil heritage, many current landowners acquired their property long after oil and gas operations—and any attendant damages—first occurred.  Thus, the “subsequent purchaser doctrine” has become a key defense for mineral lessee defendants in legacy litigation. (For more information on how the subsequent purchaser doctrine has been applied in legacy cases, click here.)

Recently, the subsequent purchaser defense was applied to dismiss claims against a mineral servitude owner in Sterling Sugars, Inc., v. Amerada Hess Corporation, No. 100091, 17th JDC, Lafourche Parish. Article 22 of the Mineral Code states that a mineral servitude owner “is obligated, insofar as practicable, to restore the surface to its original condition at the earliest reasonable time.” The Sterling Sugars landowner, which acquired its property in 1998, argued that Article 22 obligated the mineral servitude owner to restore the property to its pre-operation condition.  Operations began in 1937; thus, the plaintiff’s claims would have required the servitude owner to repair alleged damage predating the landowner’s ownership by 60 years.

After the trial court applied the subsequent purchaser doctrine to dismiss the plaintiff’s claims for pre-1998 damage against the mineral lessee, the mineral servitude owner filed its own motion for partial summary judgment arguing that the subsequent purchaser doctrine likewise applied to the plaintiff’s mineral servitude claims.  The trial court accepted the argument, and ruled that “all claims against the [mineral servitude owner] for damage that occurred prior to plaintiff’s acquisition of the property at issue, including claims for monetary relief or restoration, are DISMISSED with prejudice.”[3]

The plaintiff sought writs from the First Circuit Court of Appeal. Yesterday, (June 13, 2016), the First Circuit denied the writ “on the showing made.” Sterling Sugars Inc., v. Amerada Hess, et al., 2015-CW-1857 (La. App. 1 Cir. 6/13/16). Thus, the writ denial supplies jurisprudential support that the subsequent purchaser defense applies to claims against mineral servitude owners, including claims for “original condition” restoration under Mineral Code article 22.  As applied in Sterling Sugars, the subsequent purchaser doctrine sets the condition to which a mineral servitude owner must restore encumbered property to the condition which existed when the current landowner purchased the property.

[1]           Corbello v. Iowa Prod., 2002-0826 (La. 2/25/03); 850 So.2d 686.

[2]           10-2267 (La. 10/25/11); 79 So. 3d 246.

[3]           Sterling Sugars Inc., v. Amerada Hess Corporation, No. 100091, 17th JDC (Judgment on PXP Gulf Coast LLC and PXP Louisiana LLC’s Motion for Summary Judgment Based on the Subsequent Purchaser Doctrine (November 25, 2015)).

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue.  By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site.  The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Amendment to Louisiana’s Risk Fee Statute That Allows For Notices After Spudding Is Awaiting Governor’s Signature

Effective August 1, 2016, unless vetoed by the Governor, the Louisiana Legislature will have amended the Risk Fee Statute, La. Rev. Stat. Ann. § 30:10, which governs unit operations in the absence of a joint operating agreement.  The amendment is contained in Senate Bill No. 388, and would make the changes summarized below.

  1. Notices Allowed After Spudding

Under prior law, any owner drilling or intending to drill a well serving the unit was required to notify all other owners in the unit “prior to the actual spudding of any such well of the drilling or the intent to drill and give each owner an opportunity to elect to participate in the risk and expense of such well.”

The amendment strikes the language underlined above and adds language referencing wells already drilled, resulting in the following:

“Any owner drilling, intending to drill, or who has drilled a unit well, a substitute unit well, an alternate unit well, or a cross-unit well on any drilling unit heretofore or hereafter created by the commissioner, may, by registered mail, return receipt requested, or other form of guaranteed delivery and notification method, not including electronic communication or mail, notify all other owners in the unit of the drilling or the intent to drill and give each owner an opportunity to elect to participate in the risk and expense of such well.”

  1. Estimated or Actual Drilling Costs Due Within Sixty Days of Spudding or Receipt of the Notice, Whichever is Later

Because prior law required notice prior to spudding, the due date for payment of drilling costs determined by the AFE sent with the notice was within sixty (60) days of spudding.

The amendment provides that estimated or actual drilling costs determined by the AFE sent with the notice are due within sixty (60) days of the actual spudding of the well or receipt by the notified owner of the notice, whichever is later.

  1. No Sixty Day Limit for Risk Fee Notices When a Unit is Formed Around a Well Drilled or Drilling or When a Unit is Revised

Prior law required risk fee notices to be sent within sixty (60) days of the date of the unit order: (1) to nonparticipating owners in a unit created around a well already drilled or drilling; or (2) to owners of additional tracts included in a revised unit.  The amendment eliminates the sixty (60) day requirement.

  1. Expressly Provides That Failure to Send Notices to All Owners Does Not Invalidate Remaining Notices

The risk fee statute, as amended, states that an owner drilling, intending to drill, or who has drilled a well serving the unit may notify “all other owners in the unit” of the drilling or intent to drill and give each owner an opportunity to elect to participate in the risk and expense of such well.

Prior law did not expressly address the effect of properly sending notices to less than all owners.  The amendment includes a statement that notices properly made to any owner are valid even if not all of the owners in the unit are properly notified.

For more information, contact Jeff Lieberman (jdlieberman@liskow.com).

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue.  By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site.  The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Louisiana First Circuit Finds Appellate Jurisdiction Lacking, Declines to Address Merits of Appeal Involving Claims Related to Deepwater Horizon Response Operations

Louisiana First Circuit Court of Appeal again finds that it lacked jurisdiction over an appeal taken from a partial judgment that was not designated as final pursuant to Article 1915(B) of the Louisiana Code of Civil Procedure

            In Constantin Land Trust v. BP America Prod. Co., et al., the Louisiana First Circuit Court of Appeal continued its recent trend of scrutinizing whether appellate jurisdiction in fact exists prior to ruling on the merits of the appeal.  In this case, the plaintiffs’ claims arose from BP’s use of property along Bayou Lafourche for response operations to the Deepwater Horizon oil spill.  The plaintiffs purported to appeal the trial court’s judgment that sustained BP’s exception of prescription and dismissed the plaintiffs’ tort claims against BP.  However, the trial court recognized in its oral reasons and judgment that the plaintiffs may have asserted contract claims against BP, and the only claims that were dismissed in the judgment were the plaintiffs’ tort claims.

            Accordingly, BP filed a motion to dismiss the appeal on the basis that the judgment was a partial judgment that was not designated as final pursuant to Louisiana Code of Civil Procedure article 1915(B).  The motion was referred to the merits, and following briefing and oral argument on both the jurisdictional as well as the merits issues, the First Circuit granted BP’s motion and dismissed the appeal for lack of jurisdiction.  The court explained because the judgment addressed less than all of the plaintiffs’ claims against BP, it was immediately appealable only if authorized under article 1915 of the Louisiana Code of Civil Procedure.  Finding that the judgment did not fall within any of the categories of immediately appealable judgments under article 1915(A), the trial court had to have designated the judgment as final after an express determination that there was no reason for just delay pursuant to article 1915(B).  Because the trial court failed to make such designation, the judgment was not a final judgment for purposes of immediate appellate review, and the court held that it lacked jurisdiction to consider the plaintiffs’ appeal.

            The court additionally noted that while it had the discretionary authority to convert the improper appeal to an application for supervisory writs and rule on the merits of the writ application, it declined to do so in this case, because (i) a ruling would not terminate the litigation, and (ii) the parties have an adequate remedy by review on appeal after rendition of a final judgment.  Thus, despite accepting—and, in fact, requiring—briefing and argument on the full merits issues of the appeal, the court nonetheless declined to address them, finding instead that it lacked appellate jurisdiction based on the trial court’s failure to designate the judgment as final as required by the Louisiana Code of Civil Procedure.

            A copy of the First Circuit’s decision can be found here.  For more information regarding the decision, please contract Shannon Holtzman at ssholtzman@liskow.com, Tyler Trew at ttrew@liskow.com, or Kathryn Gonski at kzgonski@liskow.com.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue.  By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site.  The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Regulating the Regulators: Supreme Court Allows Judicial Review of Clean Water Act Determinations

The United States Supreme Court recently addressed whether the United States Army Corps of Engineers’ determination that wetlands are “waters of the United States” constitutes a final agency action that is subject to judicial review under the Administrative Procedure Act in U.S. Army Corps of Engineers v. Hawkes Co., Inc., 15-290, 2016 WL 3041052 (U.S. May 31, 2016).  In a unanimous decision, the Court held that the Corps’ determination that property constitutes “water of the United States” is a final agency action that is judicially reviewable under the Administrative Procedure Act.  As a result, parties who are uncertain whether their activities implicate “waters of the United States” and resultant Corps jurisdiction can now seek immediate judicial review of an unfavorable administrative determination, as opposed to the only prior alternatives of (i) proceeding with the expensive and time-consuming process of applying for a permit and then seeking judicial review, or (ii) engaging in the activity without a permit at the risk of an EPA enforcement action.

The Corps’ definition of whether property constitutes “waters of the United States” is significant because the Clean Water Act regulates the discharge of pollutants into “the waters of the United States.”  See, 33 U.S.C. §§ 1311(a), 1362(7), (12).  The Corps has defined the waters of the United States very broadly, along the lines of the Commerce Clause.  In fact, last year, the Corps adopted a new rule modifying the definition of the scope of waters covered by the Clean Water Act.  The rule is currently stayed, however, pending resolution of claims that it is arbitrary and capricious.  Under the Corps’ broad interpretation, these “waters” have included land that is occasionally saturated, when the use of the land “could affect interstate or foreign commerce.”  33 CFR § 328.3(a)(3) (2012).  The Corps has used this definition to assert jurisdiction over up to 300 million acres of swampy land.

Needless to say, the Corps’ expansive interpretation causes significant uncertainty about whether property constitutes “waters of the United States.”  If it does, then a party discharging pollutants on that property without a permit would be subject to penalties under the Clean Water Act.  Furthermore, section 404 permits under the Clean Water Act are very expensive.

To assist landowners, the Corps began issuing property owners an “approved jurisdictional determination” (“JD”), which states the Corps’ position on whether or not the property is part of the waters of the United States.  JDs are binding for five years.

In this case, a company, Hawkes, was interested in purchasing land in northern Minnesota to mine peat.  Hawkes applied to the Corps for a permit to begin extracting peat from the land.  The Corps told Hawkes that the permit process would be very costly and lengthy, and urged Hawkes not to buy the land.  To further discourage Hawkes, the Corps then submitted a JD which found that the land contained “water of the United States” because its wetlands had a “significant nexus” to a river 120 miles away.

Hawkes filed suit in court to challenge the JD that the land contained waters of the United States. The trial court dismissed the action and held that the JD was not a “final agency action” under the Administrative Procedure Act, and therefore it was not subject to judicial review. The Eighth Circuit reversed, holding that the JD was a final agency action and remanded the action for judicial review.  The Supreme Court unanimously agreed, holding that the Corps’ determination that property constitutes “waters of the United States” is a final agency action that is judicially reviewable under the Administrative Procedure Act.

The Court first considered whether a JD was “final” for purposes of the APA.  For agency action to be “final” under the APA, (1) the action must “mark the consummation of the agency’s decision-making process—it must not be of a merely tentative or interlocutory nature,” and (2) “the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.”  The Corps did not dispute that the JD met the first element.  As to the second element, the Court found that JDs cause “direct and appreciable legal consequences”:  A JD that property did not contain waters of the United States would create “a five-year safe harbor” from Clean Water Act proceedings for a property owner.  A JD that property did contain waters of the United States would deny this safe harbor.  Thus, JDs in both cases have practical legal consequences.

The second inquiry the Court considered was whether there were adequate alternatives to reviewing the JD in court.  Under the APA, even if an agency action is final, it is reviewable in court only if there are no adequate alternatives to such review.  The Corps argued that Hawkes had alternatives: discharge fill material without a permit (risking an EPA enforcement action during which Hawkes could argue that no permit was required), or apply for a permit and seek judicial review if dissatisfied with the results.  The Court held that neither alternative was adequate, noting that “parties need not await enforcement proceedings before challenging final agency action where such proceedings carry the risk of serious criminal and civil penalties.”

The Court noted that if Hawkes had proceeded to discharge fill material without a permit, mistakenly believing that its property did not contain jurisdictional waters, it would be exposed to severe civil and criminal penalties.  The Court reasoned:  “Respondents need not assume such risks while waiting for EPA to “drop the hammer” in order to have their day in court.”  The Court also found that it was an inadequate alternative to have Hawkes apply for a permit, then seek judicial review of an unfavorable decision.  The Court noted that “the permitting process can be arduous, expensive, and long,” and that nothing in the permitting process alters the finality of the JD, or affects its suitability for judicial review.  In short, “[t]he permitting process adds nothing to the JD.”

Finally, the Court was unmoved by the fact that the two “alternatives” (seeking review of a JD in an enforcement action or at the end of the permitting process) would be the only available avenues for obtaining review if the Corps had never adopted its practice of issuing standalone JDs upon request.  “True enough,” the Court agreed. “But such a “count your blessings” argument is not an adequate rejoinder to the assertion of a right to judicial review under the APA.”

Accordingly, as a result of this decision, a party that is dissatisfied with the Corps’ determination of whether or not property constitutes “waters of the United States” is no longer confined to the equally undesirable options of incurring the time and expense of seeking a permit only to obtain judicial review of same or proceeding to engage in the activity without a permit at the risk of a potential EPA enforcement action.  Instead, the process is significantly expedited, as judicial review of the Corps’ determination is now immediately available under the Administrative Procedure Act.

For any questions about this opinion, please contact Laura Springer Brown at lespringer@liskow.com or Kelly Becker at kbbecker@liskow.com.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue.  By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site.  The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

New Judge, Same Result – $81 Million CWA Civil Penalty Appealed

U.S. District Court Judge Dee Drell (Western District, LA) recently denied a motion to alter or amend the Court’s judgment against CITGO Petroleum Corp.– allowing an $81 million judgment against the oil company to stand.

The judgment is the latest in a suit the EPA filed against CITGO under the Clean Water Act for a 2006 spill at the oil company’s St. Charles refinery. In the original judgment, U.S. District Court Judge Richard Haik found CITGO negligent, and, based on the factors in the Clean Water Act, imposed a $6 million civil penalty. Citing the inadequacy of the penalty, the EPA successfully appealed and the Fifth Circuit vacated the judgment on grounds that the district court failed to provide a reasonable approximation of the economic benefit to CITGO, as required under the Clean Water Act. The appellate court also specifically directed the district court to “reconsider all its findings with respect to CITGO’s conduct, giving special attention to what CITGO knew prior to the oil spill and its delays in addressing recognized deficiencies.” U.S. ex rel. Adm’r of E.P.A. v. CITGO Petroleum Corp., 723 F.3d 547, 549 (5th Cir. 2013).

On remand, based on the instructions given by the Fifth Circuit, Judge Haik found that CITGO was grossly negligent and that the company’s economic benefit had been $91.7 million dollars. As a result, Judge Haik imposed a civil penalty of $1,500 per barrel spilled – for a total of $81 million – and significantly increased the penalty of $111 per barrel in his original judgment. The EPA sought a penalty of $4,300 per barrel.

In January 2016, Judge Haik retired from the bench and the case was transferred to Judge Drell. CITGO subsequently filed a motion to alter or amend Judge Haik’s judgment, arguing that there was manifest error on several accounts.

CITGO primarily argued that Judge Haik had erroneously failed to consider several facts when calculating CITGO’s economic benefit under the Clean Water Act. Specifically, the company argued that (1) the Court erred in including the cost of equipment that would not have been necessary to prevent the spill, (2) the company should not have been charged with awareness of inadequate storage facilities until the refinery expanded and its capacity increased, and (3) the capital cost rate relied on in making the calculation did not represent the least costly method of compliance, as required by the Clean Water Act. CITGO also argued that the Court should not have allowed the EPA to introduce new expert testimony at the remand hearing and that Judge Haik should have reduced the penalty so as to give CITGO credit for the monetary injunctive relief that had been imposed earlier in the proceedings.

The Court dismissed these assignments of error outright. Without addressing each argument individually, Judge Drell noted that the issues had been, or should have been, briefed extensively and addressed in argument prior to the previous judgment. Noting that a motion for alteration or amendment of a judgment is “not the proper vehicle for rehashing evidence, legal theories, or arguments that could have been offered or raised before the entry of judgment,” the Court ultimately found that “Citgo is presently attempting to essentially re-litigate this case to a new judge based on the same facts and legal theories that were fully considered by Judge Haik, which we deem to be improper under the guise of a Rule 59(e) motion.” U.S. ex rel. Adm’r of E.P.A. v. CITGO Petroleum Corp., No. 2:08CV00893, 2016 WL 1158075, at *4 (W.D. La. Mar. 18, 2016). The Court further opined, “The record reflects that Judge Haik was very well versed on this case, having first conducted a two-week bench trial, reviewed lengthy remand briefs, and then held a remand hearing to determine the correct economic benefit calculation.” Id. As such, the Court declined to consider any of CITGO’s further argument. CITGO filed an appeal of the ruling with the Fifth Circuit on May 4, 2016.

Given that in 2015 all civil enforcement actions by the EPA yielded penalties totaling $205 million (excluding settlements), the CITGO judgment stands out as unusually large. The result is consistent, however, with the EPA’s 2014-2018 Strategic Plan of focusing on large cases, and its recent pattern of pursuing fewer enforcement actions with larger resolutions. See Environmental Enforcement Results for 2015, 2015 ABA Env’t Energy, & Resources L.: Year in Rev. 48 (2015).  The Fifth Circuit’s response to CITGO’s second appeal may provide guidance on whether these types of judgments could be a trend in future Clean Water Act enforcement actions.

For more information, contact Jackie Hickman (jhickman@liskow.com) or Rob McNeal (rbmcneal@liskow.com).

DisclaimerThis Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue.  By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site.  The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Environmental Groups File Suit to Compel EPA to Review and Revise Oil and Gas Waste Regulations

On May 4, 2016, environmental groups sued the U.S. Environmental Protection Agency (EPA), seeking to compel EPA to “fulfill long-delayed nondiscretionary duties” under the Resource Conservation and Recovery Act (RCRA) by issuing revised regulations governing oil and gas wastes.  The complaint alleges that EPA’s regulations “are outdated, contain generic provisions that do not specifically address the modern oil and gas industry, and fail to adequately protect against potential harm to human health and the environment resulting from oil and gas wastes.”  According to the complaint, the harm allegedly includes the “potential carcinogenic effects of hydraulic fracturing flowback water” and the “increasing earthquakes” allegedly linked to injection wells used for oil and gas wastewater disposal.

The suit relies on RCRA Sections 2002(b) and 4002(b) (42 U.S.C. §§ 6912(b) and 6942(b)), which require EPA to review and, as necessary, revise RCRA regulations and guidelines for state solid waste management plans at least every three years.  The complaint alleges that EPA last conducted a review of its RCRA Subtitle D regulations for oil and gas wastes on July 6, 1988, “when it determined that it was necessary to revise the general Subtitle D regulations to promulgate ‘tailored’ regulations for oil and gas wastes.”  According to the complaint, EPA “has not completed these necessary revisions,” nor has it reviewed the Subtitle D regulations for oil and gas wastes since that time.  The complaint also alleges that EPA last reviewed its guidelines for state solid waste management plans in 1981, and since that time, “eleven successive three-year deadlines have passed with no further review or revision.”

The lawsuit is styled as Environmental Integrity Project, et al. v. McCarthy, Case No. 1:16-cv-00842-JDB, and was filed in the U.S. District Court for the District of Columbia.  The oil and gas industry will need to monitor this suit.  A similar lawsuit filed in 2012 in the same court resulted in a court opinion requiring EPA to review its RCRA Subtitle D regulations concerning coal ash.  See Appalachian Voices v. McCarthy, 989 F. Supp. 2d 30, 53-56 (D. D.C. 2013).  In that case, the parties eventually settled, and EPA agreed in a consent decree to finalize RCRA Subtitle D coal ash regulations by a certain date.

Forum Shopping Curtailed: Venue Limited to Parish Where Drilling Rig Was Lost

In a May 4, 2016 opinion, Louisiana’s Third Circuit Court of Appeal made clear that venue was not proper in Concordia Parish—where plaintiff filed suit for damages resulting from the loss of its drilling rig in LaSalle Parish—because:  (1) the tortious conduct allegedly occurred and damages from the loss of the drilling rig were sustained in LaSalle Parish only, despite plaintiff’s assertion that it lost profits at its domicile in Concordia Parish, and (2) not all defendants were parties to a contract executed in Concordia Parish, and the fact that there may exist joint liability among the defendants did not confer venue there.

In D&D Drilling & Exploration, Inc. v. XTO Energy, Inc., D&D Drilling & Exploration, Inc. (“D&D”) filed suit in the Seventh Judicial District Court of Concordia Parish against XTO Energy, Inc. (“XTO”), Alliance Drilling Consultants, LLC (“Alliance”), Clifton Pritchard, and Alliance’s insurer, James River Insurance Company (“James River”), for damages resulting from the loss of D&D’s drilling rig.  D&D alleged that Pritchard, an employee of Alliance, which XTO retained to operate the rig, failed to ensure that sufficient drilling mud was on hand at the rig, and that the lack of sufficient drilling mud caused a well blow out and subsequent fire that destroyed the rig in LaSalle Parish.

In response to the lawsuit in Concordia Parish, XTO filed an exception of improper venue and the other defendants subsequently filed similar exceptions.  The trial court denied defendants’ exceptions and James River, Alliance, and Pritchard filed a joint answer before all defendants sought supervisory writs.  The Third Circuit first denied writs but the Louisiana Supreme Court granted writs and remanded the matter to the Third Circuit for full briefing and argument.

Concordia Parish was not a proper venue as to any of the defendants pursuant to Louisiana’s general venue rules prescribed by Code of Civil Procedure article 42.  Instead, D&D invoked exceptions to the general venue rules, and therefore bore the burden of proof to establish venue in Concordia Parish.

First, D&D attempted to establish venue in Concordia Parish pursuant to Code of Civil Procedure article 74, which provides that “[a]n action for the recovery of damages for an offense or quasi offense may be brought in the parish where the wrongful conduct occurred, or in the parish where the damages were sustained.”  The drilling rig was lost in LaSalle Parish but D&D asserted that this case called for an extension of the concept of “where the damages were sustained” to include Concordia Parish, where D&D allegedly lost profits as a result of the loss of the rig.  The Third Circuit disagreed and, instead, adhered to “the legion of cases that hold that the parish where the wrongful conduct occurred is the parish where damages were sustained under Article 74.”  In its reasoning, the Third Circuit quoted Besler v. St. Paul Fire & Marine Ins., 509 So.2d 12, 18-19 (La. App. 1 Cir. 1987) as follows:

The common thread that runs through the Coursey-Foster-King-Williams-Lapeyrouse line of cases is that, if any damage is caused to the plaintiff in the parish where the wrongful conduct occurred, that parish, and no other, is “the parish where the damages were sustained” for purposes of Article 74. This holding is consistent with the jurisprudence that Article 74 must be strictly construed. This holding evidences public policy determinations by the Coursey-Foster-King-Williams-Lapeyrouse courts that forum shopping should be minimized in actions for the recovery of damages for offenses and quasi offenses.

The Third Circuit concluded that the loss of the rig was the basis of D&D’s lawsuit and because that loss occurred in LaSalle Parish, LaSalle Parish was the only proper venue under Article 74.

Second, D&D attempted to establish venue in Concordia Parish pursuant to Code of Civil Procedure article 76.1, which states that “[a]n action on a contract may be brought in the parish where the contract was executed . . . .”  D&D and XTO executed a contract in Concordia Parish. However, the Third Circuit explained that Article 76.1 would not extend venue to Alliance, Pritchard, or James River, even if they were joint or solidary obligors of XTO, “because the article that governs venue in the case of joint and solidary obligors, La. Code Civ. P. art. 73, limits its exception to proper venues under Article 42,” which did not confer venue in Concordia Parish as discussed above.  The Third Circuit also rejected D&D’s argument that a verbal agreement between D&D and Alliance conferred venue in Concordia Parish pursuant to Article 76.1, because D&D offered no evidence of such an agreement at the hearing on the exception.   Similarly, the Third Circuit rejected D&D’s argument that the retainer of Alliance and Pritchard by XTO constituted a contract for D&D’s benefit, creating a stipulation pour autri under Code of Procedure article 1978, because D&D offered no such evidence at the hearing on the exception.

Finally, D&D argued that Alliance, Pritchard, and James River waived their rights to object to venue because they filed answers before they filed their notice of intent to apply for writs.  The Third Circuit disagreed and concluded that the parties timely manifested their intent to apply for writs, adding that D&D’s assertion would effectively strip any defendant of the right to appeal an adverse ruling on an exception of venue, as opposed to seeking redress through an application for supervisory writs.

After rejecting each of D&D’s arguments to confer venue upon Concordia Parish, the Third Circuit granted defendants’ applications for writs peremptorily and ordered the matter transferred to the Twenty-Eighth Judicial District Court of LaSalle Parish.

Liskow and Lewis represented XTO in this proceeding.  For more information regarding the decision, please feel free to contact appellate counsel Joe Norman at jbnorman@liskow.com or Kathryn Gonski at kzgonski@liskow.com.

Fracking Scores with Two Colorado Supreme Court Opinions

Hydraulic fracturing, or “fracking,” is a hotly debated topic in many states.  In New York and Pennsylvania, anti-fracking groups have obtained a statewide ban on fracking and the allowance of local authority to regulate fracking, respectively.  Texas, however, has enacted a state law expressly preempting local authority over a number of drilling activities.  In March 2016, the Louisiana First Circuit recognized the preemptive authority of state law to regulate and permit fracking.  Now, the Colorado Supreme Court rendered two opinions on May 2, 2016 finding state law preempted local efforts to prohibit fracking.

The residents of Longmont, Colorado voted in 2012 to add Article XVI to the City’s home-rule charter.  The Article prohibited fracking and the storing or disposing of wastes created by fracking within the City’s limits.  The Colorado Oil and Gas Association sought a declaratory judgment invalidating and permanently enjoining the enforcement of the Article.  City of Longmont v. Colorado Oil and Gas Association, 2016 CO 29, ___ P. 3d ___ (Colo. 2016).  The Colorado Constitution recognizes the power of home-rule charters to supersede “any law of the state in conflict therewith.”  Colo. Const. art. XX, § 6.  However, the Colorado Supreme Court has consistently held that state law supersedes home-rule ordinances when they conflict on matters of either state concern or mixed local and state concern.  The Court concluded that the Longmont Article addressed a matter of mixed state and local concern and found the Article conflicted with and materially impeded the Colorado Oil and Gas Conservation Act.  Therefore, the Court held that state law preempted local attempts to regulate and prohibit fracking.  That same day, the Court made the same ruling with regard to a local moratorium on fracking enacted by the City of Fort Collins, Colorado.  City of Fort Collins v. Colo. Oil and Gas Ass’n, 16 CO 28 (Colo. 2016).  This moratorium, like the home-rule charter article, was preempted by the Colorado Oil and Gas Conservation Act.

The Colorado opinions echo the recent ruling of the Louisiana First Circuit.  In 2014, St. Tammany Parish filed suit after the announcement by Helis Oil & Gas of its intent to begin hydraulic fracturing in the Parish.  St. Tammany Parish Government v. James H. Welsh, 15-1152 (La. 1st Cir. App. Mar. 9, 2016).  The Parish filed suit against the state’s Commissioner of Conservation.  The Parish pointed to local ordinances zoning the proposed site as residential and also claimed the Commissioner’s permitting of the Helis project was unconstitutional.  The court agreed with the Parish that Article VI of the Louisiana Constitution bestows the land use and zoning power on the Parish but the court also recognized exceptions to this local power when the legislature’s clear and manifest purpose in enacting a law is to preempt the local ordinance.  The court recognized Louisiana Revised Statute § 30:28(F), which grants the Commissioner permitting power, as supreme over any other agency or political subdivisions’ attempt to prohibit or interfere with permitted drilling.  It further held that the State’s extensive legislation addressing every aspect of oil and gas exploration evidenced the legislature’s implied intent to preempt that area of law.  The Parish has requested review of the decision by the Louisiana Supreme Court.

These recent cases point out that the authority to regulate fracking varies from state to state and should be evaluated accordingly.

For further information, contact Catherine Napolitano at cnapolitano@liskow.com or Rob McNeal at rbmcneal@liskow.com.

LexBlog