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Fracking Litigation to Watch in 2015

First published in Texas Lawyer, January 19, 2015

By Mark Rodriguez and Brock Skelley

For nearly a decade, hydraulic fracturing, or fracking, has played a critical role in the United States' energy revolution.

Fracking remains a highly controversial topic and has produced a wide variety of litigation across the country. Environmental suits, tort claims, and actions concerning the role of fracking in seismic events are just some of the claims that have been prevalent to date.

Throughout 2014, and as we enter 2015, the landscape of fracking litigation has expanded to include lawsuits challenging local ordinances banning fracking operations. These cases have given rise to significant arguments concerning the preemption of local bans by state regulation. Results in these cases to date have varied across producing states.

In 2014, three Colorado local bans were overturned by district courts. These bans — enacted by the cities of Longmont, Fort Collins, and Lafayette — prohibited fracking within the cities' boundaries. The district court in each of these cases found that the ban was preempted by the Colorado Oil & Gas Conservation Act, which governs oil and gas development in the state. As one of the Boulder County court's noted, "[t]here [is] no way to harmonize Longmont's fracking ban with the stated goals of the Oil and Gas Conservation Act." The Longmont decision is currently on appeal.

Like Colorado, Ohio courts have determined that local bans are preempted by state law. In State ex rel. Morrison v. Beck Energy an Ohio appeals court invalidated an ordinance enacted by the city of Munroe Falls. The court found that state law granted the Ohio Department of Natural Resources the exclusive authority to regulate oil and gas production in the state. The case is currently before the Ohio Supreme Court.

Courts in New York have reached a different conclusion. The New York Court of Appeals — the state's highest court — upheld ordinances enacted by the towns of Dryden and Middlefield that effectively ban all oil and gas development, finding that the bans were not preempted by New York's Oil, Gas and Solutions Mining law. More recently, New York governor Andrew Cuomo announced in December 2014 that New York will ban fracking across the state beginning in 2015.

Other states, such as California and Pennsylvania, have also seen litigation over local regulation of fracking operations. Closer to home, local regulation of fracking and the question of preemption is a hot-button issue in Texas as we move into 2015. In November 2014, voters in Denton approved a local ordinance banning fracking. This has resulted in two separate lawsuits, one filed by the Texas Oil & Gas Association and the other by the State Land Commissioner, challenging the local ban. Like the suits in other states, the claims in these cases focus on the issue of whether state law — through regulation by the Texas Railroad Commission and other state agencies — preempts the local ordinance. The outcome in these cases could have a significant impact on Texas' oil and gas industry, including both producers and royalty owners.

Last year also saw significant decisions in other areas. In April 2014, a Dallas jury awarded $2.9 million to landowners on a private nuisance claim alleging that fracking and drilling activities exposed the landowners and their property to hazardous gases, chemicals, and industrial waste and resulted in loss of market value, pain and suffering, and mental anguish. Causation was a key issue in the case, as the operator alleged that there were over 100 wells within a two-mile radius of the landowners' residence and that the landowners failed to prove that the operator's 22 wells caused the alleged injuries. The case is currently on appeal.

Another tort case, Antero Resources v. Strudley, pending in the Colorado Supreme Court, could have a significant impact on tort claims arising out of fracking operations. The key issue in Strudley involves the use of modified case management orders — also known as Lone Pine orders — to require a plaintiff to put forth prima facie evidence to substantiate its claims before engaging in extensive discovery. The trial court in Strudley entered an MCMO, but a Colorado appeals court reversed the order and held that MCMOs are not permitted in Colorado. The Colorado Supreme Court's decision could have a significant impact on fracking-related litigation in Colorado and beyond.

At the federal level, on Jan. 7, environmental groups filed suit in the Washington, D.C. federal district court against the U.S. Environmental Protection Agency seeking to bring the oil and gas industry within the scope of the Toxic Release Inventory reporting requirements under the Emergency Planning and Community Right-to-Know Act. The TRI provisions of EPCRA require covered facilities to report, on an annual basis, releases into the environment of specifically-listed chemicals. While the plaintiffs propose that EPA add all oil and gas industry facilities within the scope of the TRI obligations, they specifically cite the expansion of fracking and horizontal drilling as the source of the dramatic increase in oil and gas extraction facilities over the past decade. It remains to be seen how EPCRA's definition of a "facility" would be applied to fracking operations, which are typically temporary in nature and involve wells, pads, compressors, and other equipment disbursed over a large area.

To effectively understand and manage their business and associated risk, companies and individuals active in fracking operations and shale development must remain keenly aware of these and future legal developments.

Mark C. Rodriguez is a partner and Brock Skelley is an associate with Vinson & Elkins in Houston. Mark represents energy clients in a broad range of lawsuits, arbitrations, and administrative proceedings throughout the country. Brock focuses on royalty underpayment class actions, breach of contract cases, and a variety of disputes in the upstream and midstream sectors. Attorneys at their firm were involved with Antero Resources v. Strudley, which is mentioned in the article.

Reprinted with permission from the January 19, 2015 edition of Texas Lawyer. © 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.