Hill v. Sw. Energy Co.

• Decision Date: 22 May 2017
• Docket Number: No. 15-3458,15-3458
• Citation: 858 F.3d 481
• Parties: 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 Hooper; Crystal Hooper ; Corey Warden; Julie Warden, Plaintiffs Dale Stroud; Kari Stroud, Plaintiffs–Appellants v. SOUTHWESTERN ENERGY COMPANY, Defendant–Appellee Chesapeake Energy; XTO Energy, Inc., Defendants SEECO, Inc., Defendant–Appellee
• Court: U.S. Court of Appeals — Eighth Circuit

858 F.3d 481

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 Hooper; Crystal Hooper ; Corey Warden; Julie Warden, PlaintiffsDale Stroud; Kari Stroud, Plaintiffs–Appellants

v. SOUTHWESTERN ENERGY COMPANY, Defendant–AppelleeChesapeake Energy; XTO Energy, Inc., DefendantsSEECO, Inc., Defendant–Appellee

No. 15-3458

United States Court of Appeals, Eighth Circuit.

Submitted: December 14, 2016

Filed: May 22, 2017

Counsel who presented argument on behalf of the appellant was Timothy R. Holton, of Memphis, TN. The following attorney(s) appeared on the appellant brief; John R Holton, of Memphis, TN., Michael P. McGartland, of Fort Worth, TX.

Counsel who presented argument on behalf of the appellee was Gregory Alan Perkins, of Little Rock, AR. The following attorney(s) appeared on the appellee brief; James D Rankin, III, of Little Rock, AR., Kimberly D. Logue, of Little Rock, AR.

Before WOLLMAN, SMITH¹ , and BENTON, Circuit Judges.

BENTON, Circuit Judge.

Southwestern Energy Co. disposed of fracking waste near the property of R. Dale and Kari B. Stroud after they refused to lease their property to SWE. The Strouds sued, claiming SWE's waste migrated onto their property. The district court granted SWE's motion for summary judgment based on the insufficiency of the Strouds' proof. Having jurisdiction under 28 U.S.C. § 1291, this court reverses and remands.

I.

The facts are "viewed in the light most favorable to the [Strouds]." See Torgerson v. City of Rochester , 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). SWE extracts natural gas through hydraulic fracturing, breaking open natural rock formations and extracting the natural gas. As part of those operations, SWE must dispose of chemical-containing waste water.

On the Strouds' property is an exhausted and plugged production well. In 2009, an SWE representative (a "landman") approached Dale about disposing of fracking waste on their property. Negotiations were unsuccessful. SWE leased the right to dispose of its fracking waste through a well on neighboring property. According to Stroud's affidavit, the landman later told him he had been greedy and that SWE would "use the well on [the neighbor's] property to fill up the empty gas space under [the Strouds'] property since it was all connected."

The well SWE drilled—the "Campbell well"—is 180.3 feet from the Stroud property line. SWE leased a surface area of 3.29 acres and disposed of approximately 7.6 million barrels of fracking waste. If the leased area were 100% porous (which it is not), it would hold just under 1.1 million barrels. As the district court noted, experts unanimously agree that this volume of waste "could not possibly fit in the reservoir space directly beneath the leasehold."

Before drilling the Campbell well, SWE got approval from the Arkansas Oil and Gas Commission. In those proceedings, it was assumed the waste would migrate radially—the general presumed movement pattern for unimpeded liquids. However, the Commission's primary focus was not the migration pattern of the waste, which was not questioned or scrutinized.

The Campbell well drilled into the Barton B. Sands reservoir, a formation thousands of feet underground that is depleted of natural gas and was available for fracking waste. The Sands reservoir runs beneath the Stroud property. The reservoir is heterogeneous, with both sand and rock.

Obstacles capable of sealing fluid flow—clay shales and silica overgrowths—are in the area. However, there is no evidence that any of these impediments would prevent fracking waste from the Campbell well from flowing onto the Stroud property.

The Strouds claim that—based on the volume of disposed waste, the small volume under the leased area, the proximity of the Strouds' property, and the assumed radial flow—the fracking waste migrated into the subsurface of their property, resulting in trespass and unjust enrichment. There is no evidence of surface contamination on the Strouds' property. Instead of drilling to obtain a sample or creating a computer model based on seismic data—both, according to the Strouds, prohibitively expensive—they hired an expert to calculate the radial flow of the fracking waste. The district court ruled his report unreliable.

The district court had ordered phased discovery, the subject of multiple disputes. It ordered: "The first, and primary, issue for discovery is whether the waste fluid has migrated to the subsurface strata of the [Strouds'] real property."

SWE moved for summary judgment at the end of the first phase of discovery. The district court granted SWE's motion, despite acknowledging it "seems likely, considering all the circumstances, that the waste migrated under the Strouds' land" and that the remaining evidence "adds up to a strong ‘maybe.’ " The court thought that a reasonable "juror would have to speculate to conclude that a trespass by migration actually occurred."

II.

Discovery decisions and the exclusion of expert testimony are reviewed for abuse of discretion. United States ex rel. Kraxberger v. Kansas City Power & Light Co. , 756 F.3d 1075, 1082 (8th Cir. 2014) ; Johnson v. Mead Johnson & Co., LLC , 754 F.3d 557, 561 (8th Cir. 2014). "A district court has very wide discretion in handling pretrial discovery and this court is most unlikely to fault its judgment unless, in the totality of the circumstances, its rulings are seen to be a gross abuse of discretion resulting in fundamental unfairness in the trial of the case." Kraxberger , 756 F.3d at 1082.

A.

The Strouds claim the district court erred in limiting Phase I discovery by: (1) denying access to company emails discussing injection wells; (2) requiring SWE to produce only "their hand-picked ‘well file’ " instead of answering the Strouds' interrogatories and requests for production; (3) limiting the Strouds to depositions of SWE's 30(b)(6) witnesses instead of allowing them to choose whom to depose; and (4) limiting the Strouds to only five interrogatories, which SWE agreed to answer instead of providing seismic data.

The district court imposed these limits in order to conduct the process efficiently. It established these restrictions as a starting point, noting that if the limited discovery showed the need for more extensive discovery, the district court would allow it. The Strouds do not argue, nor does the record reflect, that they sought additional discovery but were denied.

"[A] district court must be allowed the discretion to limit the scope of discovery to what the court perceived were the central issues." MKB Mgmt. Corp. v. Stenehjem , 795 F.3d 768, 773 n.4 (8th Cir. 2015) (internal quotation marks omitted). It is within the district court's discretion "to limit discovery and proof at trial." Admiral Theatre Corp. v. Douglas Theatre Co. , 585 F.2d 877, 889 (8th Cir. 1978).

Because the discovery in this case involved sensitive proprietary information, the district court properly imposed initial limits on discovery. This was not a "gross abuse of discretion resulting in fundamental unfairness." Kraxberger , 756 F.3d at 1082.

B.

The Strouds argue that the district court abused its discretion by excluding their expert's report. Evidence based on scientific, technical, or specialized knowledge is admissible if: (1) it is relevant—"useful to the finder of fact in deciding the ultimate issue of fact"; (2) the witness is "qualified to assist the finder of fact"; and (3) it is "reliable or trustworthy in an evidentiary sense, so that, if the finder of fact accepts it as true, it provides the assistance the finder of fact requires." Johnson , 754 F.3d at 561. The expert must base an opinion "on facts or data in the case that the expert has been made aware of or personally observed." Id. ,quoting Fed. R. Evid. 703 (internal quotation marks omitted). Scientific evidence "should be tested by the adversary process with competing expert testimony and cross-examination, rather than excluded by the court at the outset." Id. at 562, citing Daubert v. Merrell Dow Pharm., Inc. , 509 U.S. 579, 596, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). It should be liberally admitted if it "rests upon good grounds, based on what is known," and doubts about the usefulness should be resolved in favor of admissibility. Id. (internal quotation marks omitted).

The expert report here was prepared by Walter L. Dowdle, a registered Professional Engineer in Texas and Mississippi. He has BS and MS degrees in petroleum engineering and over 35 years of consulting experience in the oil and natural gas industry. He has been qualified as an expert witness by the Federal Energy Regulatory Commission. Dowdle consulted with R. Lynn McCoy—a petrophysicist with a BS in geology and an MS in petroleum engineering—to determine values for some of the variables in his equation.

Dowdle estimated how far injected fracking waste had spread from the Campbell well. He used a simplistic equation to create a rough model, which he believed adequate "to determine the extent to which fluids injected into the [Campbell well] have reached within the subsurface disposal zone." The equation contained "many simplifying assumptions," including radial flow, and, according to SWE's expert, failed to "adequately reflect the actual subsurface properties of the injection zone" by ignoring "reservoir heterogeneities and other important factors" like permeability and gravity.

In response to criticism by SWE's expert, Dowdle created a second report explaining that his findings did not assume the input properties were constant or uniform, but were averages. He stated that "the net thickness and average porosity of the Campbell well ... are supported by [SWE]'s isopach map of the disposal zone and by its response to interrogatories." He explained it was unnecessary to include permeability and gravity. He also explained:

Regarding the assumption of radial pattern, this is the same assumption

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