Hill et al v. Southwestern Energy Company
ORDER granting motion to amend, as modified 65 . Motions to dismiss, No. 23 (as amended), 33 41 granted except on the trespass and unjust-enrichment claims and the class-certification issue, which isn't ripe yet. All the dismissals are without prejudice. Signed by Judge D. P. Marshall Jr. on 9/26/13. (kpr)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
ROBBIE HILL; GWENNA HILL;
JOSEPH SMITH; CATHERINE SMITH;
KATHY L. HAMILTON; JERRY VAN WORMER;
RANDY PALMER; JOYCE PALMER; LARRY KING;
MARGARET KING; ADAM KOFOID;
BRADLEY HOPPER; CRYSTAL HOPPER;
COREY WARDEN; and JULIE WARDEN
SOUTHWESTERN ENERGY COMPANY;
and XTO ENERGY
1. The plaintiffs are Arkansas landowners. All except the Hills leased
mineral rights to one of the three defendants (or a predecessor in interest or
a subsidiary)- companies that seek and extract natural gas through hydraulic
fracturing. Most of the fluid used in £racking stays underground. Some,
though, comes back up the well with the gas. The defendants have permits
from the State authorizing them to inject this waste fluid in disposal wells.
Those wells are on land leased from third parties. The plaintiffs say the waste
fluid injected in several disposal wells has exceeded the storage capacity of
the subsurface strata beneath the wells and migrated to their property. Each
of the plaintiffs lives a mile or more away from at least one disposal well. The
plaintiffs press a host of claims in a lengthy complaint, some with specificity
(civil RICO and Arkansas Deceptive Trade Practices Act) and many in passing
(fraud, trespass, conversion, unjust enrichment, contract-based).
defendants have responded with comprehensive motions to dismiss. The
short story is that a couple of claims survive but most fail as a matter of law.
2. Preliminary Matters. First, Southwestern's request to amend its
motion papers to clarify that some plaintiffs' leases were with SEECO, a
wholly owned subsidiary, is granted. There's no prejudice. And the record
needs to be clear. Southwestern's papers are deemed amended; its proposed
clarified motion and brief, N!! 65-1 & 65-2, need not be filed and served.
Second, the Court will consider the leases because they're embraced by the
complaint and are public records. FED. R. Crv. P. 10(a); Porous Media Corp. v.
Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999); Noble Sys. Corp. v. Alorica Cent.,
LLC, 543 F.3d 978,982 (8th Cir. 2008). Though not attached to the complaint,
they're attached to Southwestern's brief, and the parties argue from them.
3. Standing. The Court rejects defendants' no-standing arguments.
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 591-92 (8th Cir. 2009). The
plaintiffs have sufficiently alleged an injury-in-fact: the presence of unwanted
waste fluid in the ground far below their homes. They say the £racking waste
is there, not just that it might be. NQ 15 at 18-19, 24-25, 32, 35-36, 41, 44.
Notwithstanding the blurry post-IqbaljTwombly line, this allegation is more
fact than conclusion. Whether the frack waste has, in truth, migrated there is
a matter for proof in due course. So, too, is the extent of any injury if
migration has occurred. The Court is unwilling to hold, given that defendants
have paid other land owners for allowing the waste to be injected into and
stored beneath their land, that storage without permission or payment causes
no injury. The amended complaint is sufficient and plausible on the injury
issue. Braden, 588 F.3d at 591-92.
4. RICO. The civil RICO claim is dismissed without prejudice as to all
defendants. Plaintiffs have not adequately pleaded either an enterprise or
racketeering. Crest Canst. II, Inc. v. Doe, 660 F.3d 346, 352-58 (8th Cir. 2011).
The defendants are competitors in the natural gas business. Each leases
mineral rights, drills production wells, and operates them. Each operates
disposal wells, too. None of the structural facts needed to show a criminal
enterprise are present in the amended complaint. 18 U.S.C. § 1961(4); Boyle
v. United States, 556 U.S. 938,946 (2009); United States v. Lee, 374 F.3d 637,647
(8th Cir. 2004). The alleged mail and wire fraud are also too thin. "RICO does
not cover all instances of wrongdoing ... it is a unique cause of action that is
concerned with eradicating organized, long-term, habitual criminal activity."
Crest Const. II, Inc., 660 F.3d at 353.
5. ADTPA. The defendants' motion is granted on the Arkansas
Deceptive Trade Practices Act claim.
My Brother Holmes's thoughtful
analysis in analogous circumstances applies here. Williams v. State Farm Mut.
Auto. Ins. Co.,2010WL2573196,at*4 (E. D. Ark.,22June2010); RM Dean Farms
v. Helena Chemical Co., 847 F. Supp. 2d 1125, 1125-27 (E.D. Ark. 15 March
2012). The Oil and Gas Commission and the Arkansas Department of
Environmental Quality regulate injection wells. The Commission issued
defendants permits to drill and operate these wells. With an immaterial
exception, the Deceptive Trade Practices Act" does not apply to ... [a]ctions
or transactions permitted under laws administered by ... [a] regulatory body
or officer acting under statutory authority of this [S]tate or the United States."
Ark. Code Ann. § 4-88-101(3). XTO is correct: plaintiffs' claim muddles the
result (the alleged migration) with the permitted action (drilling and
operating the well by injecting the waste). N2 61 at 9-10. Whether the
Commission should be concerned, in general, with the horizontal migration
alleged here is an important policy matter for the State, not for this Court in
this case. If the plaintiffs could proceed on their ADPTA claim based on an
alleged regulatory failure, the ADTPA's safe harbor would be closed and § 488-101 eliminated from the code.
Plaintiffs' fraud claims fail at the threshold too.
Notwithstanding the comprehensiveness of the amended complaint, sufficient
particulars that would satisfy Federal Rule of Civil Procedure 9(b) are still
missing. Great Plains Trust Co. v. Union Pac. R.R. Co., 492 F.3d 986, 995 (8th
Cir. 2007); U.S. ex rei Joshi v. St. Luke's Hasp., Inc., 441 F.3d 552, 556 (8th Cir.
2006). Some details are alleged, but they don't add up to fraud against these
Using land men from away and securing mineral leases
quietly- to minimize cost- is aggressive business, not fraud. It is hard to see
how defendants not offering disposal leases, as well as mineral leases, could
be fraudulent here. No one has a right to a contract. And the absence of one
did not induce plaintiffs to act to their detriment. It is not alleged, for
example, that defendants sought mineral leases, all the while intending
disposal wells rather than production wells, and then injected waste instead
of producing gas. That would be a solid fraud claim. The injection-well
notices, which plaintiffs criticize as opaque, were State-approved forms.
Plaintiffs have pleaded plausible claims in the circumstances; fraud is not
7. Civil Conspiracy. This passing claim is dismissed without prejudice.
As with the lack of pleaded facts about structure on the RICO claim, the
amended complaint offers only conclusions about the alleged combination of
defendants to accomplish a common purpose "by unlawful, oppressive, or
immoral means ... to [plaintiffs'] injury." Born v. Hosto & Buchan, PLLC, 2010
Ark. 292, * 9, 372 S.W.3d 324, 331.
Plaintiffs' say the injection wells are an
ultrahazardous activity that subjects the gas companies to strict liability for
resulting injuries. Maybe so or maybe not. The pleading fails at this point,
though, because of the kind of injury alleged-wrongful occupation of the
subsurface, not damage to the subsurface, or the surface, or the groundwater.
That circumstance makes this case different from the Tucker/Berry case, where
pollution of groundwater and air was alleged. The injury alleged makes this
case primarily, if not exclusively, a matter of trespass. The strict liability
claims fail as pleaded.
9. Contract-Based Claims. The Court rejects the argument, emphasized
by Southwestern, that the plaintiffs' mineral leases (excepting the Hills, who
have no lease) allowed migration and storage of frack waste from any other
well. The relevant provision from the Smiths' lease, which is identical to the
others, is in the margin. 1 The key words are emphasized. Plaintiffs gave the
gas companies the right to inject all manner of fluids, and to leave fluids in the
subsurface strata, if that was "necessary, incident to, or convenient for the
economical operation of [the Smiths'] land, alone or conjointly with
neighboring land ...." Plaintiffs did not give, and the defendants did not get,
the right to store frack waste fluid from any possible source on plaintiffs'
OIL AND GAS LEASE (Paid-up Lease-No Delay Rentals). THIS AGREEMENT,
made and entered into this 14th day of February, 2006, by and between Joseph D. Smith, Jr. and
Catherine C. Kimble Smith, Husband and Wife of 50 Highway 107, Quitman, AR 72131
hereinafter called Lessor (whether one or more) and SEECO, Inc. 1083 Sain Street, Fayetteville,
Arkansas 72702 hereinafter called Lessee. WITNESSETH: Lessor for and in consideration of
Ten and No/100 Dollars ($10.00) and other good and valuable consideration in hand paid, receipt
of which is hereby acknowledged, and of the agreements of lessee hereinafter set forth, hereby
grants, demises, leases and lets exclusively unto said lessee the lands hereinafter described for
the purpose ofprospecting, exploring by geophysical and other methods, drilling, mining,
operating for and producing oil or gas, or both, including but not as a limitation, casinghead gas,
casinghead gasoline, gas-condensate (distillate) and any substance, whether similar or dissimilar,
produced in a gaseous state, together with the right to construct and maintain pipe lines,
telephone and electric lines, tanks, power stations, ponds, roadways, plants, equipment and
structures thereon to produce, save and take care of said oil and gas, and the exclusive right to
inject air, gas, water, brine and other fluids from any source into the subsurface strata and any
and all other rights and privileges necessary, incident to, or convenient for the economical
operation of said land, alone or conjointly with neighboring land, for the production, saving and
taking care of oil and gas and the injection of air, gas, water, brine, and other fluids into the
subsurface strata, said lands being situated in the County of Faulkner, State of Arkansas, and
being described as follows, to wit: SEE "EXHIBIT A" AITACHED HERETO AND MADE A
PART HEREOF FOR COMPLETE LEGAL DESCRIPTION AND ADDITIONAL
PROVISIONS of Section 1, Township 8 North, Range 12 West, it being the purpose and intent
of lessor to lease, and lessor does hereby lease, all of the lands or interests in lands owned by
lessor which adjoin the lands above described or which lie in the section or sections herein
specified whether or not herein completely and accurately described, together with and including
any accretions thereto which may have formed, may now be forming or may hereafter form. For
all purposes of this lease, said land shall be deemed to contain 1.53 acres.
land. The gas companies' argument from the contract proves too much.
Plaintiffs' claim for violation of the covenant of good faith and fair
dealing implicit in their leases, and in all contracts, fails as a matter of law.
There is no tort here; and no free-standing claim for breach exists solely on
this basis. Allegedly unfair dealing is "nothing more than evidence of a
possible breach of a contract between the parties." Arkansas Research Med.
Testing, LLC v. Osborne, 2011 Ark. 158, *4. Plaintiffs' effort to clarify their
breach claim in the briefing falls short. For the same reason Southwestern's
attempted defense on the contract fails, Plaintiffs' breach claim fails: the
parties' lease simply does not address frack waste fluid from drilling on nonneighboring land. The good faith and fair dealing/breach claim is dismissed.
10. Conversion. Plaintiffs' conversion theory fails to state a claim. One
converts personal property. Dent v. Wright, 322 Ark. 256, 262, 909 S. W .2d 302,
305 (1995); HOWARD W.
BRILL, LAW OF DAMAGES§
33:7 (5th ed. 2004). The
amended complaint does not plead facts showing that the gas companies
exercised dominion over personalty. Plaintiffs do not allege, for example, that
the companies extracted gas to which they had no entitlement. Minerals, gas,
timber, or anything that can be separated from the land is personal property
vulnerable to conversion. Jones v. Brown, 211 Ark. 164, 167, 199 S.W.2d 973,
974-75 (1947); Dillard v. Wade, 74 Ark. App. 38, 41, 45 S.W.3d 848, 850-51
(2001); RESTATEMENT (SECOND) OF TORTS§ 927 (1979) and comment g. A
parcel's subsurface storage capacity, however, can't be removed. This part
of realty is used or not. The gas companies allegedly used the plaintiffs'
subsurface by occupying it without permission. The claim sounds in trespass,
11. Trespass. Plaintiffs have stated a claim. The essence of real
property ownership is the right to use and enjoy it, excluding others if the
owner so chooses. RESTATEMENT (FIRST) OF PROPERTY§ 7 (1936); Junction City
Lumber Co. v. Sharp, 92 Ark. 538, 542, 123 S.W. 370, 371 (1909). Unauthorized
entry is a trespass; actual injuries or damages are not required. Pennington v.
Woods, 204 Ark. 26, 31, 161 S.W.2d 16,18 (1942). Whether ad coleum remains
the law in Arkansas, as plaintiffs argue, or the governing rule requires actual
interference with some reasonable and foreseeable use, 2 as the gas companies
contend, the answer is the same at this point in this case. Plaintiffs have
The Court notes that the Ohio law argued by the companies, e.g.,
Chance v. BP Chemicals, Inc., 670 N.E.2d 985, 992 (1996), seems at odds with
the Arkansas law that no actual damage need result to create an actionable
trespass. E.g., Pennington, supra. The Court will continue to study Young v.
Ethyl Corp., 521 F.2d 771 (8th Cir. 1975), but is not yet persuaded that the
decision goes as far as XTO argues on this point. Ng 61 at 3-4.
pleaded a plausible trespass claim: they allege that the gas companies'
£racking waste fluid has migrated from nearby injection wells into the
subsurface strata of plaintiffs' real property. Use of this part of plaintiffs' land
for storing £racking waste is both reasonable and foreseeable given the gas
companies' undisputed use of strata beneath nearby land in this very way.
If the waste fluid has migrated, interesting and difficult damage issues may
well arise, not least because, given how £racking is done and what the parties'
leases authorize, there was liquid waste beneath plaintiffs' property before
any migration. We'll take these issues if and when they come. The motions
to dismiss are denied on the trespass claim.
12. Unjust Enrichment. Plaintiffs have pleaded a plausible restitution
claim too. The parties' leases do not cover this issue. So the law may imply
a contract, if justice in the circumstances requires one, to prevent unjustified
enrichment. United States v. Applied Pharmacy Consultants, Inc., 182 F.3d 603,
606-09 (8th Cir. 1999). "A person who obtains a benefit by an act of trespass
or conversion, by comparable interference with other protected interest in
tangible property, or in consequence of such an act by another, is liable in
restitution to the victim of wrong." RESTATEMENT (THIRD)
AND UNJUST ENRICHMENT§ 40 (2011) and comment c.
Motion to amend, N2 65, granted as modified. N2 23 & NQ 24 deemed
amended. Motions to dismiss, N2 23 (as amended), N2 33, & N2 41 granted
except on the trespass and unjust-enrichment claims and the class-certification
issue, which isn't ripe yet. All the dismissals are without prejudice. An Initial
Scheduling Order will issue.
D.P. Marshall Jr.
United States District Judge
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