Remediation Damages after State v. Louisiana Land & Exploration Company

Ross Roubion, J.D./C.L. 2014, Paul M. Hebert Law Center, Louisiana State University. Production Editor of the LSU Journal of Energy Law and Resources, Volume II.

Introduction

In January, the Louisiana Supreme Court held in State v. Louisiana Land & Exploration Company that the plain language of Louisiana Revised Statute 30:29 allows a landowner to recover damages in excess of those contemplated by regulatory standards.[1] This article examines that decision in the context of recent legacy litigation, and investigates the extent to which this decision affects causes of action grounded in the Louisiana Mineral Code.

Short History of Legacy Lawsuits

Louisiana Land & Exploration Company is the latest in a line of decisions dealing with environmental damage to property; previous decisions are discussed below.[2]

Beginnings: Corbello v. Iowa Products

In Corbello v. Iowa Products, the Louisiana Supreme Court awarded contractual damages of $33 million to landowners for environmental damage to a tract of land that was worth little more than $100,000 on the market.[3] The oil and gas company responsible for the damage argued a standard of reasonableness governed the contract.[4] The company argued that the damage award could not reasonably be more than three hundred times the value of the property itself.[5] The landowners, however, argued that the contract was the law between the parties.[6] Since the contract called for the land to be restored to its original condition, only the cost of remediation was due.[7]

Favoring the landowners, the court focused on language in the contract, which called for the land to be restored to its original condition.[8]Nothing in the agreement, the court reasoned, tethered restoration costs to the market value of the property.[9] The measure of damages was limited only “by the four corners of the contract.”[10] The policy underlying the decision was simple: the court reasoned that tethering the measure of damages to the market value of the land would give oil and gas companies free reign to damage land however they pleased.[11] After Corbello, the number of lawsuits by landowners seeking compensation for the remediation of their property increased dramatically.[12]

The Legislative Response to Corbello

Three years after Corbello, the Louisiana Legislature enacted a comprehensive legislative scheme—both to protect landowners from environmental damage, and to protect oil and gas companies from excessive damage awards.[13] Louisiana Revised Statute 30:29 contains six basic components:

1)      the act requires that the state receive timely notice of environmental damage litigation;[14]

2)      the act stays that litigation until thirty days after notice is given to the state;[15]

3)      the state may intervene;[16]

4)      the Louisiana Department of Natural Resources (LDNR) must determine the most feasible plan for remediation of the environmental damage;[17]

5)      All damages awards must be paid into the court’s registry, and the court must oversee the most “feasible” plan for remediation;[18]

6)      The landowner, and the state, may recover expert and attorney fees from the responsible party.[19]

Application of the New Scheme: Marin v. Exxon Mobil

In Marin v. Exxon Mobil, the Louisiana Supreme Court ruled that the amount of restoration that a lessee owed to a landowner was equal to the amount required by Louisiana Revised Statute 30:29.[20] The court reasoned that Section 29 guided the process of remediation.[21] The duty to remediate, the court said, arises not from that statute itself; rather, it arises from the Mineral Code,[22] or from an express contractual obligation.[23] In Marin, the court held that the contract itself did not require restoration.[24] Nor did the rule of Terrebonne Parish School Board v. Castex Energy[25]—which sets out a lessee’s remediation duty under article 122 of the Mineral Code—require restoration.[26]

Tort Claims: Eagle Pipe & Supply, Inc., v. Amerada Hess Corp.

In Eagle Pipe & Supply, Inc., v. Amerada Hess Corporation,[27] the Louisiana Supreme Court held that the “subsequent purchaser doctrine”—which provides that a landowner has no right to recover from a third party for damage inflicted before his purchase—barred a landowner from recovering for damage done to property pre-purchase.[28] In that case, the plaintiff purchased property and, upon finding that it was contaminated, sued a group of prior owners who allegedly caused the contamination.[29] The court held that the subsequent purchaser doctrine applied regardless of whether damage was apparent at the time of sale.[30]

After Eagle Pipe, tort claims for property damage are out of a landowner’s reach, unless the current landowner has obtained an explicit assignment or subrogation of rights from the previous owners.[31] The Eagle Pipe decision severely limits both the scope of legacy lawsuits that landowners may bring, as well as the types of claims.[32]

Summary of Legacy

Prior to State v. Louisiana Land & Exploration Company, it was clear that exploration and production companies would, in the context of express contractual provisions, be obligated to restore the land to whatever extent the contract required. The contract was the law between the parties, and especially after Corbello, that was never in doubt. However, in the absence of an express contractual provision calling for surface restoration, a court would turn to the Mineral Code for two reasons. First, a court would need to determine whether the producer was under a duty to restore at all.[33] Second, a court would look to both the Mineral Code and jurisprudence to examine the scope of that duty—that is, to see how much remediation was due. After Marin, the question of scope seemed to be settled. Absent an express contractual provision, the lessee’s duty to restore the surface would not exceed the amount of restoration required by Louisiana Revised Statute 30:29.[34] After Eagle Pipe, plaintiffs were severely limited in the types of claims they could bring. Most tort claims were invalidated, thanks to the subsequent purchaser doctrine. In the ten years since Corbello, lessees had regained the upper hand in legacy litigation.

New Decision: Louisiana Land & Exploration Co.

In the wake of this history of contentious legacy decisions, the Louisiana Supreme Court decided Louisiana Land and Exploration Co.[35] In the case, the Vermilion Parish School Board filed a petition seeking remediation of Sixteenth Section land.[36] The mineral lease on the property was originally granted in 1935.[37] As their causes of action, plaintiffs alleged various theories: negligence, strict liability, unjust enrichment, trespass,[38] breach of contract, and violations of both the Mineral Code and the Civil Code.[39]

The court held that Louisiana Revised Statute 30:29 did not limit the remediation damages to the amount necessary to fund a feasible plan under Revised Statute 30:29.[40] Rather than having their claims limited by regulatory standards, the State and school board were allowed to seek additional remediation damages, which would be attained through “private rights, whether they arose contractually or by law.”[41] Revised Statute 30:29, the court said, only changed how remediation damage awards were to be spent:

“The procedure under the Act does not prohibit the award of remediation damages for more than the amount necessary to fund the statutorily mandated feasible plan, nor does the procedure described in the Act intrude into the manner in which remediation damages are determined. . . . The only change accomplished by Act 312 is how the damages to remediate property are spent. Under Act 312, landowners do not receive that portion of the remediation damages award needed to fund the statutorily mandated feasible plan; these funds must be deposited into the registry of the court.”[42]

Only money required for cleaning up the property has to be paid into the registry of the court.[43] Additional money is not subject to that requirement.[44] Ultimately, the purpose of the act was to ensure that the land was restored to the point that served the public interest—not to cap damages for defendants.[45] The act neither limits nor impedes the parties’ right to contract.[46]

Excess Damages?

Louisiana Revised Statute 31:22

Mineral Code article 22 sets out the duty of a mineral servitude holder with regard to surface remediation. The article states that the owner of a mineral servitude is entitled to use only as much of the land as is reasonably necessary to conduct his operations, and that “he is obligated, insofar as practicable, to restore the surface to its original condition at the earliest reasonable time.”[47] While it is clear that a duty exists, no court has squarely addressed the scope of that duty.[48] After Land and Exploration Co., servitude holders are now even more likely to be held to a complete clean-up, not limited by 30:29.[49]

Louisiana Revised Statute 31:122

As the court held in Land and Exploration Co., damages awards are not limited by the amount required to fund the statutorily required “feasible plan.”[50] Excess damages may be awarded. But, for example, suppose that a claimant’s tort claims were precluded under the subsequent purchaser doctrine of Eagle Pipe. Do actions arising purely under the Mineral Code article 122 allow for “excess” damages? Does the holding of Land and Exploration Company go that far?

In Castex, the Louisiana Supreme Court noted that Mineral Code article 122 did not necessarily impose a duty to restore the surface.[51] Rather, that duty was only triggered where the lessee had acted unreasonably or excessively.[52] The court in Land and Exploration Company described the test under article 122 (given by Castex) as follows:

“[T]he express terms of this article impose only two obligations upon a mineral lessee: (1) to perform the contract in good faith; and (2) to develop and operate the leased property as a reasonably prudent operator for the mutual benefit of the lessee and the lessor. The court [in Castex] found the mineral code statute simply adapts the general good administrator standard of La. C.C. art. 2710, applicable to all leases, to the specific context of a mineral lease. . . Mineral Code article 122 does not impose an implied duty to restore the surface to its original, pre-lease condition absent proof that the lessee has exercised his rights under the lease unreasonably or excessively. Consequently, unless there is evidence the lessee has exercised his rights under the lease unreasonably or excessively, an implied duty to restore/remediate the property is no longer encompassed in the prudent operator standard of La. R.S. 31:122.”[53]

So, one thing is clear: a lessee may escape liability entirely, if its conduct is not unreasonable.[54] Marin, however, stated that a lessee’s “additional restoration duty” was the duty to correct the contamination.[55] If this was Marin’s holding, then how much of Marinsurvived Land & Exploration Company?

The court in Land & Exploration Companyconcluded that the defendants failed to carefully read the jurisprudence.[56] “Far from abandoning the requirements of Castex,” the court wrote, “Marin reaffirmed them.”[57] In Marin, the degree of remediation necessary had already been determined.[58] But in Land & Exploration Company, the amount of remediation required under neither the tort claims nor the contract claims had been determined by a finder of fact.[59] The facts of Marin were therefore distinguishable.[60]  Its holding—that the remediation due to the plaintiff was equivalent to the amount required by 30:29—was likewise distinguishable.

After Land & Exploration Company here is how to analyze a lessee’s surface restoration liability: step one, ask whether a duty exists at all. Castexsays that if the damage is normal wear and tear, then no liability arises.  Determining what counts as normal wear and tear largely depends on what damage the parties had in mind when they made their agreement. If damage exceeds normal wear and tear, it is excessive, and liability arises.

Once liability is established, step two asks how much clean-up is due. Three answers are possible here. First, what does the contract say? Does it have an express provision calling for restoration to the original condition? (That is, has the lessee been Corbello-ed?) If that is the case, the contract is still the law between the parties, and the contract will set the standard for remediation—it will tell the lessee how much clean-up is due. Second, check whether tort claims are involved. Tort claims might call for additional damages. Marin, on the other hand, held that when there were no tort claims, the remediation owed to the lessor was equal to the amount required by Louisiana Revised Statute 30:29. Third, if the contract does not address the issue, and there are no tort claims involved, then there is only one thing left that can guide restoration: Mineral Code article 122.  The difficult question, even after Land & Exploration Company, is exactly how much remediation Mineral Code article 122 requires? Louisiana Revised Statute 30:29 does not cap damages at a regulatory standard. So, what is the standard provided by article 122? Is it original condition? Or is a reasonableness limitation implied as part of the standard? Contract provisions are not limited by reasonableness, but perhaps article 122 would require one. This is at best speculation. Until the Supreme Court addresses the exact standard of remediation that article 122 requires, the answer remains unknown.

Preferred citation: Ross Roubion, Remediation Damages after State v. Louisiana Land & Exploration Company, LSU J. Energy L. & Res. Currents (May 13, 2013), http://sites.law.lsu.edu/jelrblog/?p=240.