EPS v. FPL Farming – A Deep Dive Into Subsurface Trespass Claims
A case currently before the Texas Supreme Court could determine the viability of subsurface trespass claims in Texas. Environmental Processing Systems, L.C. v. FPL Farming Ltd. involves a claim of trespass damages based on subsurface migration from a wastewater injection well. Although environmental agencies regard injection wells as the safest way to dispose of non-hazardous wastewater, property owners have occasionally asserted trespass resulting from naturally occurring underground migrations. Oil and gas operators, working interest owners, agricultural associations, and landowners are closely monitoring this litigation. Oral arguments in the case were held on January 7, 2014, and the Court could issue a decision at any time.
The Safe Drinking Water Act Underground Injection Control (UIC) program establishes various requirements for the construction, operation, permitting, and closure of injection wells in six classes. Class I wells cover hazardous wastes, industrial non-hazardous liquids, and municipal wastewaters injected beneath the lowermost underground source of drinking water. Class II wells cover injections of brine and other fluids associated with oil and gas production. The remaining four classes cover other types of operations.
Environmental Processing Systems, L.C. (“EPS”) operates a hazardous wastewater disposal facility in Liberty County, TX. FPL Farming Ltd., (“FPL”) owns adjoining land that it uses for rice farming. In 1996, EPS applied for a permit to build two Class I wells for nonhazardous wastewater injections into a groundwater-saturated brine formation more than 7,000 feet below the surface. FPL objected to EPS’ permit request because it was concerned that the injections might contaminate groundwater beneath its farm, thereby reducing its value and potential for use in desalination processes. EPS’ permit application estimated that wastewater injected into the wells could reach the subsurface deep below FPL’s property within about ten years.
After reaching a settlement with EPS, FPL withdrew its request for a contested hearing on the injection permit. In 1997, the Texas Natural Resource Conservation Commission, now the Texas Commission on Environmental Quality (“TCEQ”), issued the permit. TCEQ later amended the permit to increase the wells’ maximum injection rate. FPL raised a series of regulatory and legal challenges to the permit amendments, which were eventually overruled by both the Travis County District Court and the Austin Court of Appeals.
History of the Litigation
In 2006, FPL sued EPS in Liberty County, alleging negligence and trespass (among other claims) and seeking an injunction to stop the injections. Specifically, FPL claimed the wastewater injections had migrated beneath its property and contaminated the brackish groundwater found there. In arguing its case before a jury, FPL did not show that subsurface migration would interfere with its farming activities, nor did FPL claim that it had tried to use the groundwater for any purpose. The jury rejected FPL’s trespass claims and the trial court rendered a take-nothing judgment. The Ninth Court of Appeals, Beaumont affirmed.
FPL filed a petition for review in the Texas Supreme Court. In 2011, the Court unanimously held that holding that “holders of wastewater injection well permits issued by TCEQ are not immune from civil liability.” FPL Farming, Ltd. v. Envtl. Processing Sys., L.C., 351 S.W.3d 306, 308 (Tex. 2011). Notably, the Court did not decide “whether subsurface wastewater migration can constitute a trespass, or whether it did so in this case.” Id. at 315. The Court remanded the case to the court of appeals.
On remand, the court of appeals reversed its prior holding and recognized a cause of action for subsurface trespass. The court of appeals also considered FPL’s argument that the trespass claim was not properly submitted to the jury (which found that no trespass had occurred). The court of appeals found that definition of a trespass in the jury charge—“an entry on the property of another without having consent of the owner”—was erroneous because it misplaced the burden of proof on the issue of FPL’s consent. Instead, the court held that EPS bore the burden to show that FPL consented to the wastewater’s presence beneath its land. EPS objected to both of these decisions and asked the Supreme Court to again review the court of appeals’ decision.
The Texas Supreme Court wrestled with several difficult questions during oral arguments. The most basic question was whether the Court should recognize, for the first time, a common law claim for subsurface trespass. The Court’s 2011 holding that EPS’ state-issued permit did not shield it from trespass liability was arguably inconsistent with its prior decisions in R.R. Comm'n of Tex. v. Manziel, 361 S.W.2d 560 (Tex.1962) and Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008). In Manziel, the Court rejected trespass claims based on secondary recovery waters from an authorized secondary recovery project crossed lease lines. The Court declared that the “rules and principles applied by the courts as regards surface invasions of land may not be appropriately applied to subsurface invasions as arise out of the secondary recovery of natural resources.”Coastal Oil held that damages for drainage by hydraulic fracturing are precluded by the rule of capture when the only result of the operation is that the oil or gas migrates to another tract. Notably, the Court did not decide whether a trespass had actually occurred; it remanded the case and the jury found for the plaintiff.
In its briefs and during oral arguments, EPS argued that Manziel and Coastal Oilshould be read as placing significant limits on a property owner’s right to exclude wastewater migrations below the surface. FPL countered that Texas case law and statutes robustly protect landowner’s interests in the groundwater beneath their property, and recognize that trespass is the traditional means of protecting that interest. To bolster its argument, FPL highlighted the Court’s 2012 decision,Edwards Aquifer Authority v. Day, 369 S.W.3d 814 (Tex. 2012), which held that landowners have a constitutional property interest in the groundwater in place beneath their land.
FPL conceded that Manziel and Coastal Oil set some limits on landowners’ rights to exclude subsurface fluids associated with oil and gas production activities, but it sought to distinguish Coastal Oil in two ways. First, FPL pointed out that Coastalinvolved hydraulic fracturing operations, which are governed by the common law rule of capture. This distinction is significant because the rule of capture is based on the theory that a landowner whose well is being drained by drilling on adjacent properties can protect his interests by drilling his own well. However, this rule does not protect a landowner trying to stop contamination from subsurface migrations from wastewater injection wells. Additionally, FPL argued that the trespass claim inCoastal Oil was made by a royalty owner who did not own a possessory interest in the land below the surface. By contrast, FPL owns the subsurface and, consequently, the right to exclude others from it.
The parties also pressed the Court to resolve a question that it evaded in Garza: Does a plaintiff always have to prove damages to prevail on a claim for subsurface trespass? EPS, Texas case law and the Texas Water Code require plaintiffs to prove actual damages. According to EPS, FPL failed to meet its burden of proof because the brackish groundwater is essentially unusable. Further, EPS said its wastewater injections did not restrict FPL’s ability to use the same formation for injections if it wished to do so. EPS used this point to distinguish Edwards Aquifer Authority v. Day, which involved a government-imposed limitation on the amount of groundwater that a landowner could pump; no such limitation applied to FPL in this case.
FPL countered EPS’ arguments by showing that EPS’ injections, which contain acetone and naphthalene, could contaminate the groundwater, thereby reducing its commercial value. Disputing EPS’ claim that the brackish water is unusable, FPL highlighted recent improvements in desalination techniques that could make the water valuable in meeting the state’s future water needs. In addition, FPL observed that when properly treated, brackish water can be used for heating and various aquaculture uses.
Although the Court devoted much attention to these thorny issues, there is a chance it could avoid ruling on the trespass question altogether. During oral arguments, EPS argued that the Court did not need to reach the question of whether Texas should recognize subsurface trespass to resolve the case. Instead, EPS said that because the jury found that no trespass occurred based on the facts of the case, FPL would still lose the lawsuit. FPL countered that the jury instruction improperly required FPL to prove lack of consent as an element of trespass, and argued that consent should be treated an affirmative defense. Either argument provides a way for the Court to postpone a decision on whether a property owner can pursue trespass claims for subsurface migration from underground injection wells.
A Texas Supreme Court ruling could have significant implications for landowners suing for subsurface trespass, as well as the legal status of wastewater injection wells. The Court could hold that when a plaintiff has a possessory interest in the subsurface it is not required to show damages to prevail on a subsurface trespass claim. This outcome follows the common law rule and would likely encourage lawsuits by other landowners seeking to stop injections, regardless of the underlying groundwater’s current fitness for drinking or commercial uses; it might also lead companies to relocate wells or modify their waste disposal practices. A more balanced resolution—that in order to make a claim for subsurface trespass, the plaintiff must prove damages—would reflect the Court’s holding in Coastal Oil. Either outcome will likely create an incentive for companies to obtain a lease from surface owners that authorize injections and specified depths and surface areas. Finally, it is noteworthy that although this case concerns a wastewater injection well, the courts involved in this litigation have not distinguished between different classes of UIC wells. Thus, the Court’s decision may also impact Class II wells associated with oil and gas production and hydraulic fracturing operations.
Posted at 01/29/2015 2:01 PM