Energy Alert – Implications of New 10th Circuit Opinion On Oilfield Contamination Litigation

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February 20, 2024 | By: Brooks A. Richardson, Tim Sowecke, and Steven J. Adams

Lazy S Ranch Properties LLC v. Valero Terminaling and Distribution Company, — F.4th —, 2024 WL 564323 (10th Cir. February 13, 2024)

Lazy S Ranch and Valero are litigating an oilfield pollution case in which the Ranch claims damages ranging from $13 million to more than $43 million. The Ranch’s sole evidence of legal injury was the presence of an odor of refined hydrocarbons emanating from one place, a cave, on the 6,165-acre ranch. Two witnesses testified the odor in the cave was strong enough to give them headaches. The Ranch did not contest scientific testing evidence showing the trace amounts of contaminants found on the Ranch were not harmful or dangerous. The Ranch never notified a regulatory agency of the contamination, workers on the Ranch continue to drink the water through a filter, and cattle continue to graze on the property. No one ever told the Ranch that its water was unsafe to drink or sell. In addition, the Ranch presented no evidence of intentional trespass or breach of ordinary care by Valero or that Valero even knew there was a leak from its pipeline. The Ranch identified only one leak from Valero’s pipeline – a visible drip from a mechanical union two miles south of the cave where the odor was found. There had been a substantial release in 2018 six miles away from the Ranch; however; the Ranch presented evidence from experts that the trace contaminants found were fresh and could be no more than three to six months old.

The United States District Court for the Eastern District granted summary judgment for Valero, finding there was no evidence to support a genuine issue of material fact to support any of the Ranch’s claims, including not only the trespass, negligence, and constructive fraud claims, but also its claims for public nuisance, private nuisance, and negligence per se. On February 13, 2024, a Tenth Circuit three-judge panel, in a split decision, reversed and remanded the nuisance and negligence per se claims for trial. Judge Phillips dissented from the majority.

Key Holdings

  • “Under 27A O.S. § 2-1-102(12), [a landowner] can “succeed by showing either pollution amounting to a nuisance or pollution rendering the environment harmful, detrimental, or injurious.” (emphasis added) The landowner “need not show both.”
  • With respect to waters of the state, “the finding of a private nuisance based on the unlawful release of substances into the environment necessitates the finding of a public nuisance also.”
  • If a genuine issue of material fact exists as to nuisance in a pollution case based on 27A O.S. § 2-5-105(A), then it also exists as to a claim for negligence per se.
  • Oklahoma Administrative Code § 165:10-7-5 applies to a claim for negligence per se arising from alleged oilfield contamination.

Based on these holdings, the majority found that Lazy S Ranch had established a genuine issue of material fact sufficient to support their claims of nuisance and negligence per se by presenting generalized evidence that one or two people felt a headache while near an odor of hydrocarbons in a cave. While agreeing “the law does not allow relief on the basis of an unsubstantiated phobia,” the majority also pointed to other evidence in support of its reversal that would typically fall into that exact category: (1) one witness testified that he feared igniting a lighter (and so he didn’t); and (2) the Ranch owner decided to forego water sales and prohibit third parties from recreating on the property as a result of the cave odor even though no one told him the water on the Ranch was unsafe to drink or sell.

Analysis. The Tenth Circuit’s decision will likely make it more difficult to obtain summary judgment in oilfield contamination cases. Despite developing very favorable scientific evidence establishing that any hydrocarbon contamination was well within safe standards, Valero’s legal arguments were derailed by two witnesses who testified they got headaches while standing in a cave that smelled like diesel fuel. This relaxation of objective, standards-based evidence for pollution cases will lead to more litigation and result in more trials.

Advice for Industry. There are many steps companies can take to lower their risks of liability for oilfield contamination – both before and after litigation arises. GableGotwals attorneys have extensive experience in these areas. Our lawyers have helped clients avoid litigation through proactive counseling on environmental management strategies and practices, leading environmental audits, preparing incident response plans, exercising incident response drills, providing insurance coverage reviews, and participating in active incident response in the field. We also have successfully litigated numerous oilfield contamination cases through trial and appeal.

Click here for a more detailed analysis of the Tenth Circuit decision and protective measures industry participants should consider.

For tailored advice on how this ruling may affect your operations or litigation exposure, please contact a member of our team.

Brooks A. Richardson

Tim Sowecke
Steven J. Adams
Alex R. Telarik

This article is provided for educational and informational purposes only and does not contain legal advice or create an attorney-client relationship. The information provided should not be taken as an indication of future legal results; any information provided should not be acted upon without consulting legal counsel.