Less than two years after achieving favorable legislation, the oil and gas industry wants to tweak the rules governing cleanup litigation.
The Baton Rouge Business Report
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The 2012 session of the Louisiana Legislature included a minor political crisis for the Jindal administration. The issue: so-called legacy lawsuits.
Oil and gas companies were hoping the industry-friendly governor would be their ally in thwarting expensive legal actions—otherwise known as Act 312 suits—by landowners over environmental damage that often is decades old. But as the session dragged on and a flurry of competing bills were debated, their worries grew that Jindal would side with the wealthy landowners instead.
Eventually a deal was reached that gave the industry most of what it wanted. But now, not even two years later, oil and gas interests are unhappy with their lot once again.
“We’re going to need to tweak it,” says Don Briggs, president of the Louisiana Oil & Gas Association. “When you create a law, you don’t necessarily get it right the first time.”
Briggs claims Louisiana’s plaintiff-friendly legal climate, of which legacy suits are a part, is driving oil and gas production, and the tax dollars and jobs it creates, to other states. But Michael Stag, a New Orleans-based environmental law attorney who has been involved in many such suits, says the industry’s real motives are clear.
“The oil companies won’t be happy until landowners go away and have no right to sue them and get their property cleaned up,” Stag says. “They want their pollution to stay out there forever, and they don’t want to have to deal with the problem.”
“Forever” isn’t as much of an exaggeration as it may seem. For decades, it was standard practice to dump oil well wastewater into open pits.
While environmental regulations are much tougher today, much of that historical muck is still out there, although the company that did the damage often is long gone. “Legacy” suits often go after every company that has ever worked a site, not just the current leaseholder.
Documents unearthed by local attorney Don Carmouche indicate that the industry knew its practices would come back to haunt it eventually.
“The industry cannot escape the moral responsibility for the effect of such wastes,” reads a 1932 American Petroleum Institute memo.
THE COURT WEIGHS IN
The infamous Corbello decision in 2003—in which reportedly $33 million was awarded to restore a property only worth $108,000—spurred the Legislature to pass Act 312 in 2006, followed by the 2012 tweaks. At the risk of oversimplifying a complicated legal issue, a few key points from the more recent legislation are particularly noteworthy.
First, defendants now can admit responsibility for cleaning up a property to meet state regulations, without admitting liability for any additional losses allegedly connected to the pollution, such as dead livestock. Theoretically, this allows the companies to live up to their basic responsibilities while other claims can be litigated separately.
Prior to 2012, the state Department of Natural Resources’ Office of Conservation weighed in after a case was adjudicated on whether the cleanup plan put forward by the defendant oil company would get the property up to regulatory standards. Now, Conservation is supposed to present its plan early, and the court decides whether that plan is good enough in a given case, or if the lease requires a more expensive restoration, such as returning a property to its original condition. The industry figured that if DNR says a decent cleanup only would cost, say, $1 million, a court would be less likely to award a landowner $30 million.
But recent court decisions have made the industry nervous about how Act 312 suits will be handled going forward. In Vermillion v. LL&E, the state Supreme Court in early 2013 suggested that a landowner might be entitled to have his property restored beyond the regulatory standard to its original condition—a much more expensive proposition—even if the relevant lease doesn’t require the tougher standard.
“Defendants who thought that maybe they were limited to cleaning up the property to regulatory conditions face a greater cleanup,” says Keith Hall, who directs LSU’s Louisiana Mineral Law Institute. The Legislature could try to clarify this point in 2014.
LOGA Vice President Gifford Briggs also cites the Savoie decision out of Cameron Parish, in which a plaintiff received an award several times greater than what DNR said would be the cost of a regulatory cleanup.
“It has always been our belief that the court would then reduce the jury award [to reflect the state’s estimate],” he says. “Why bother going through the process at DNR if the end result is going to be that whatever the jury awards is the award?”
DNR says oil production in Louisiana appears to have increased slightly during each of the past three years, thanks in part to higher prices and advanced recovery methods. But LOGA in December blamed the state’s legal climate for the fact that “an all-time historic low” of 13 rigs were running on land, although booming oil shale plays in other states at least partly account for the low rig count here. A hotly disputed study by David Dismukes of the LSU Center for Energy Studies in 2012 said legacy lawsuits have cost the state as much as $6.7 billion and more than 30,000 jobs.
It remains to be seen how legacy lawsuits will be addressed this year, or if the fight over those fixes will be as contentious as in 2012. Stag says one can never underestimate the political influence of the oil industry.
“Last time we lobbied against them, they had, I heard, something like 50 lobbyists running around the Capitol,” he says. “I expect they’ll probably have more of the same.”