Chevron USA, Inc. v. Smith

• Decision Date: 17 October 2002
• Docket Number: No. 1999-CA-01658-SCT.,1999-CA-01658-SCT.
• Citation: 844 So.2d 1145
• Parties: CHEVRON U.S.A., INC. v. Alcus SMITH and Kay Smith.
• Court: Mississippi Supreme Court

844 So.2d 1145

CHEVRON U.S.A., INC. v. Alcus SMITH and Kay Smith.

No. 1999-CA-01658-SCT.

Supreme Court of Mississippi.

October 17, 2002.

Rehearing Denied May 22, 2003.

Luther T. Munford, Reuben V. Anderson, Michael B. Wallace, Amanda Jones, Robert E. Meadows, William R. Keffer, Robert O. Allen, Jackson, attorneys for appellant.

David T. Cobb, Jackson, Robert L. Johnson, III, Natchez, Jay Boling, Stuart H. Smith, New Orleans, LA, Robert Russell Williard, Jackson, attorneys for appellees.

EN BANC.

SMITH, P.J., for the Court.

¶ 1. In this oil field contamination case, Chevron, U.S.A., Inc. appeals from a judgment against it awarding landowners Alcus and Kay Smith $2,349,275.00 in damages in accordance with the jury's answers to special interrogatories. The jury found Chevron 100% liable, but it deadlocked on the issue of punitive damages. The trial court granted a mistrial as to punitive damages, but it denied a new trial on that issue since a different jury would have to hear it, in violation of Miss.Code Ann. § 11-1-65 (2002). Chevron timely appealed to this Court, and the Smiths cross-appealed on the issue of punitive damages.

¶ 2. On appeal, Chevron contends (1) that the judgment for property damages should be set aside because the damages are limited to diminution in property value which the Smiths recovered from a settling defendant; (2) that the judgment should be reversed in favor of Chevron because the Smiths unreasonably refused to allow remediation by COHO, the current operator of the field; and (3) that the jury's finding that Chevron did not act as a reasonably prudent operator was unsupported by the evidence. On cross-appeal, the Smiths claim they are entitled to a new trial on the issue of punitive damages. In its amicus curiae brief the Mississippi Independent Producers and Royalty Owners Association ("MIPRO") raised the issue that venue was improper in Hinds County.

¶ 3. We find that the trial court erred in allowing a jury trial as the Smiths failed to exhaust administrative remedies before seeking relief in the trial court. Donald v. Amoco Prod. Co., 735 So.2d 161 (Miss. 1999). The Smiths were required under our precedents to first seek restoration of their property from the Mississippi Oil and Gas Board before a trial court could consider the issue and possibly assess an appropriate measure of damages. Accordingly, we reverse the trial court's judgment, and we render judgment here dismissing the Smith's complaint and this action without prejudice for failure to exhaust administrative remedies. The Smiths must seek relief before the Oil and Gas Board.

FACTS

¶ 4. In 1943, Chevron acquired a mineral lease to the Brookhaven field "for the purpose of investigating, exploring, prospecting, drilling and mining for and producing oil, gas and all other minerals, laying pipe lines, building tanks, power stations, telephone lines and other structures thereon to produce, save, take care of, treat, store, transport and manufacture said minerals, and hous[e][ ] employees." Eventually the field was unitized,¹ and Chevron became the designated field operator. In 1966, Chevron built a saltwater facility on one acre of the field to serve the oil wells throughout the entire field.

¶ 5. Saltwater is a natural by-product of oil and gas production, and the saltwater facility in the field took saltwater in by pipelines and stored it until it was disposed of or injected into wells. Some of the formations from which the oil was produced contained naturally occurring radioactive material ("NORM") which was also present in the water solution that was produced along with oil. The saltwater pipelines and storage tanks at issue in this case contained NORM. Small amounts of NORM can build up over time and can eventually lead to radioactive levels, which is what happened in this case.

¶ 6. In 1979, the Smiths purchased the surface rights to 55 acres of the Brookhaven field. The Smiths lived in Wisconsin at the time, but they bought the land for the purpose of building their retirement home on it. They were aware of the oil and gas operations, including the saltwater facility that was located on the land they purchased. The saltwater facility was operated by Chevron until it sold its interest in the field to Florabama in 1990. The Smiths contend that the facility was abandoned around the time they purchased the land in 1979. Chevron claims the saltwater facility at issue was still in active operation at the time it sold its interest to Florabama.

¶ 7. The contract between Chevron and Florabama financially obligated Florabama for any environmental cleanup. Florabama operated the field until 1995, when it sold its interests to COHO, whose contract in turn made it financially responsible for any cleanup. COHO continues to operate the field today.

¶ 8. In 1994, neighbors of the Smiths' property informed the Smiths that the equipment on their property might contain NORM. This discovery was made after government testing showed that the drinking water of many of the residents had been polluted by Chevron's operations. In 1996, the Smiths filed this lawsuit against Chevron and its parent company, Florabama, COHO and other defendants in Hinds County Circuit Court. The trial court found that Florabama did not operate the saltwater facility in question and granted summary judgment in its favor. Florabama filed for bankruptcy a month before trial began. At the conclusion of trial, the Smiths appealed the dismissal of Florabama to this Court. While on appeal, Florabama settled with the Smiths for $75,000, and it was voluntarily dismissed.

¶ 9. The record indicates that one of Chevron's experts testified that one week before trial COHO made an offer to remove the saltwater facility, but the Smiths contend the offer was not made until the eve of trial. Nevertheless, the Smiths refused the offer. In light of the refusal, COHO was granted summary judgment precluding the Smiths from recovering the cost of removal from it. This left only Chevron and its parent company as defendants. After trial, COHO filed for bankruptcy. Chevron and COHO entered into an agreement for removing equipment and soil containing NORM from the entire Brookhaven field which was approved by the Bankruptcy Court, the Mississippi Oil and Gas Board, ("Board") and the Mississippi Department of Health. Many plaintiffs who sought relief in Lincoln County from the same defendants have allowed the cleanup. The Smiths filed this lawsuit immediately upon learning of the contamination and have continued to refuse the cleanup.

DISCUSSION

¶ 10. Donald v. Amoco Prod. Co., 735 So.2d 161 (Miss.1999), sets a binding precedent in cases where plaintiffs seek to have oil producers clean up byproduct pollution. Under that case, plaintiffs must seek restoration from the Mississippi Oil and Gas Board before a court can properly assess the appropriate measure of damages.

¶ 11. Where an administrative agency regulates certain activity, an aggrieved party must first seek relief from the administrative agency before seeking relief from the trial courts. State v. Beebe, 687 So.2d 702, 704 (Miss.1996) (citing NCAA v. Gillard, 352 So.2d 1072, 1082-83 (Miss.1977)

; Everitt v. Lovitt, 192 So.2d 422, 426 (Miss.1966); Davis v. Barr, 250 Miss. 54, 157 So.2d 505 (1963)). Donald states that, in cases where private plaintiffs are seeking clean up of oil production byproducts, the Oil and Gas Board "remedy is adequate and should ... [be] exhausted prior to filing a private suit." Donald, 735 So.2d at 177. This Court cannot ignore Donald and fail to force the Smiths to seek relief from the Oil and Gas Board before filing suit in the trial court.

¶ 12. We also note that Mississippi law provides that it is the duty of the Oil and Gas Board to "make adequate rules and regulations ... requiring the disposal of waste products such as, but not limited to, mud, acids, saltwater or any corrosive products brought to the surface from any oil, gas or condensate well in this state, to prevent seepage, overflow or damage and injury to the topsoil or surface." Miss. Code. Ann. § 53-1-17(l) (1999). The Oil and Gas Board has seen fit to classify NORM as part of this list and to promulgate regulations defining the proper methods for preventing NORM pollution and for the disposal of such byproducts. Miss. Oil & Gas Bd. R. 68 & 69. In the creation of the Oil and Gas Board, the intent of the Legislature was that the Board was to protect the general public from the dangers inherent in the production of oil and gas. Miss.Code Ann. § 53-1-17 (1999).

¶ 13. The regulatory scheme promulgated by the Legislature and the Oil and Gas Board is designed to protect the citizens of Mississippi from pollution resulting from oil and gas drilling operations. Pollution resulting from operations like Chevron affects the entire population of Mississippi, and every citizen has an interest in seeing that violations of statutes and regulations are enforced. Thus, pollution clean up operations have been deemed the responsibility of the Oil and Gas Board. The Board possesses a specialized knowledge of the dangers presented by oil and gas exploration and drilling, and its collective expertise in such areas as the proper disposal methods for radioactive waste is the best asset available in developing an effective disposal plan for the NORM in the Brookhaven field. The Board is more suited than the average juror to understand the broad scope of the regulations and the factual scenarios presented by each case of environmental pollution.

¶ 14. This Court cannot allow a private landowner to pursue restoration of his or her land in the courts of this State by sidestepping a very vital and useful agency that could help protect the average Mississippian from the dangers of NORM pollution. Since no court can order the plaintiffs in this case to expend the award on decontaminating the property, the outcome allowed by the trial court...