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Sep 14 2016

Can a Court Require Environmental Remediation That Will Cost Far in Excess of Land’s Value? Texas Supreme Court May Decide

September 14, 2016 (Houston)

James SmithBy James Smith – “Environmental Alert” (Schirrmeister, Diaz-Arrastia, Brem LLP)

The Lazy R Ranch (“the Ranch”) sued ExxonMobil because of soil and groundwater contamination from historical oil and gas production in certain areas of the Ranch.  The Ranch did not seek money damages, but requested that the trial court issue an injunction requiring ExxonMobil to take action to prevent ongoing migration that could further contaminate groundwater below the Ranch.

ExxonMobil Gets Dismissal, Case Gets Appealed

ExxonMobil argued to the trial court that the Ranch cannot get an injunction, because the cost to implement the injunction would far exceed the value of the property.  ExxonMobil also argued that the claim was barred by the statute of limitations.  The trial court dismissed the case, without specifying the grounds for the dismissal.

The Ranch appealed to an intermediate appellate court, which reversed the trial court ruling.  ExxonMobil has appealed the decision of the intermediate court to the Texas Supreme Court, requesting a reinstatement of the dismissal.  On September 2, 2016, the Texas Supreme Court agreed to hear the case.

ExxonMobil’s Arguments

In its appeal, ExxonMobil makes the following assertions regarding Texas law:

  1. Injunctive relief is not available when a monetary award can compensate the Ranch;
  2. If the anticipated repair costs of contaminated property far exceed the value of the property, then the damage is permanent.
  3. When the damage is permanent, the remedy is the lost market value of the property due to the contamination, not restoration or the costs of restoration.

ExxonMobil submitted evidence that complying with the injunction sought by the Ranch would far exceed the market value of the contaminated areas of the Ranch.

ExxonMobil also argued that the Ranch knew or should have known of any contamination long ago, and that the claim was barred by limitations.

Lazy R Ranch’s Response

The Ranch argues that when groundwater is threatened, Texas law allows landowners to obtain injunctions requiring those who have contaminated the property to take actions necessary to ensure that more groundwater does not become contaminated.  The Ranch claims that the temporary/permanent distinction is relevant only if the Ranch was seeking monetary damages, which it is not.  The Ranch also argues that ExxonMobil’s own actions, as well as other circumstances, preclude dismissal based on the statute of limitations.

What Relief Is Available to Private Parties?

While the Ranch submitted evidence of contamination above certain state regulatory standards, it does not appear that any regulatory agency has demanded the injunctive relief that the Ranch, a private landowner, is seeking.  While a regulatory agency, through its own proceedings or through a court proceeding, may be able to issue or obtain an injunction whose cost to implement would exceed the value of the property being protected, it is unclear if a private landowner, such as the Ranch, can obtain such relief.

The case presents the Texas Supreme Court with an opportunity to discuss the scope of available injunctive relief, or the application of the statute of limitations, in the context of property historically contaminated by oil and gas production.  Oral arguments are set for November 7, 2016.

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