Exxon Corp.. v. Emerald Oil & Gas Co.

• Decision Date: 13 February 2007
• Docket Number: No. 05–0729.,05–0729.
• Citation: 331 S.W.3d 419,54 Tex. Sup. Ct. J. 342
• Court: Texas Supreme Court
• Parties: EXXON CORPORATION and Exxon Texas, Inc., Petitioners,v.EMERALD OIL & GAS COMPANY, L.C., Respondent.

331 S.W.3d 419

54 Tex. Sup. Ct. J. 342

EXXON CORPORATION and Exxon Texas, Inc., Petitioners,

v.EMERALD OIL & GAS COMPANY, L.C., Respondent.

No. 05–0729.

Supreme Court of Texas.

Argued Feb. 13, 2007.Rehearing Granted Nov. 20, 2009.Decided Dec. 17, 2010.

Shannon H. Ratliff, Marla Diane Broaddus, Ratliff Law Firm, P.L.L.C., Karen L. Watkins, Patton G. Lochridge, William T. George, McGinnis Lochridge & Kilgore, L.L.P., Austin, S. Jack Balagia Jr., Exxon Mobil Corp., Byron C. Keeling, Keeling & Downes, P.C., Edward John “Jack” O'Neill Jr., Howrey, L.L.P., Houston, for Petitioner.William J. Joseph Jr., Candace Beth Kaiser Eindorf, Howrey, L.L.P., Alice Oliver–Parrott, Alice Oliver–Parrott, P.C., Maria Teresa Arguindegui, Maria Teresa Arguindegui, P.C., Eileen O'Neill, Ware Jackson Lee & Chambers, LLP, Houston, Deborah G. Hankinson, Hankinson Levinger LLP, Dallas, Elana S. Einhorn, The University of Texas School of Law, Austin, for Respondent.Zachary S. Brady, Zachary S. Brady, P.C., Lubbock, for Amicus Curiae.Justice WAINWRIGHT delivered the opinion of the Court.

After issuing our opinion, we granted respondent's motion for rehearing on November 20, 2009 and obtained further briefing from the parties. Without further oral argument, we withdraw our opinion of March 27, 2009 and substitute the following opinion. Our judgment remains unchanged.¹

In this oil and gas dispute, we determine whether section 85.321 of the Texas Natural Resources Code allows a subsequent mineral lessee to maintain a cause of action against a prior lessee for damages to the mineral interest that occurred prior to the time the subsequent lessee obtained its interest. We hold that section 85.321 creates a private cause of action that does not extend to subsequent lessees. Because the plaintiff in this case owned no interest in the mineral leases when the prior lessee allegedly damaged the interest, the plaintiff lacks standing to assert a cause of action under section 85.321.² Accordingly, we reverse the court of appeals' judgment. Today, we also issue our opinion in the rehearing of Exxon Corp. v. Miesch, the companion to this case.

I. FACTUAL AND PROCEDURAL BACKGROUND

In the 1950s, Humble Oil & Refining Company (Humble) held mineral leases with Mary Ellen and Thomas James O'Connor on several thousand acres in Refugio County, Texas (O'Connor Field or Field). Exxon Texas, Inc. succeeded Humble's interest in the leases. Under the leases, Exxon paid a fifty percent royalty, which was higher than the royalty Exxon paid on an adjoining tract. In the 1970s and 1980s, Exxon unsuccessfully sought to renegotiate the royalty percentage with the royalty owners. Deciding that it was no longer sufficiently profitable to continue operating the O'Connor Field, Exxon systematically plugged and abandoned the wells, completing its abandonment of the Field in 1991.

In 1993, Emerald Oil & Gas Company, L.C. (Emerald) obtained leases for a portion of the O'Connor Field and attempted to re-enter the wells. Emerald encountered unexpected difficulties when it tried to re-enter the wells. Emerald alleges that Exxon caused these difficulties by improperly plugging and intentionally sabotaging the wells by putting considerable quantities of metal, unidentifiable refuse, and environmental contaminants into the wells, placing nondrillable material in the wells, and leaving cut casing in the plugged wells. In 1996, Emerald, on behalf of its working-interest owner, Saglio Partnership Ltd., sued Exxon on six claims: (1) breach of a statutory duty to properly plug a well, (2) breach of a statutory duty not to commit waste, (3) negligence per se, (4) tortious interference with economic opportunity, (5) fraud, and (6) negligent misrepresentation. The royalty owners ³ intervened, alleging similar claims.

Exxon moved for partial summary judgment against Emerald and the royalty owners on grounds that: (1) Exxon has no obligation to potential future lessees; (2) there is no private cause of action for breach of a statutory duty to plug a well in a particular way; (3) there is no private cause of action for breach of any statutory duty not to commit waste; and (4) the facts alleged do not give rise to a claim for tortious interference with economic opportunity; but (5) in the alternative, if the royalty owners have a claim against Exxon for failure to plug the wells properly, it sounds in contract only, not in tort.

The trial court granted portions of Exxon's motion for partial summary judgment, concluding that under sections 85.045, 85.046, 85.321, and 89.011 of the Texas Natural Resources Code and Title 16 section 3.14(c)(1) of the Texas Administrative Code, Exxon owed no statutory duty to potential future lessees, including Emerald. Accordingly, the trial court granted partial summary judgment in Exxon's favor on Emerald's three statutory claims of (1) negligence per se, (2) breach of a statutory duty to plug a well properly, and (3) breach of a statutory duty not to commit waste. The trial court then severed those claims and proceeded to trial on Emerald's three remaining claims against Exxon: fraud, negligent misrepresentation, and tortious interference. The court also denied Exxon's motion for summary judgment on the royalty owners' claims and tried those claims. This appeal arises from Emerald's challenge to the trial court's summary judgment on the statutory claims.

The court of appeals reversed and remanded Emerald's three statutory claims to the trial court, holding that section 85.321 imposes a duty on current lessees to future lessees and thus provides a basis for a cause of action against Exxon. Exxon petitioned this Court for review. We now review the trial court's summary judgment de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex.2003). Our opinion on rehearing in Exxon v. Miesch, also issued today, decides the appeal of claims that were tried.

II. DISCUSSION

A. Private Cause of Action

Two of Emerald's claims against Exxon invoke statutory duties—breach of statutory duty to plug a well properly and breach of statutory duty not to commit waste. Emerald's pleadings cite section 85.321 of the Texas Natural Resources Code as the basis for its standing to bring the first claim and refers to other related provisions of the Code in support of standing to bring the second claim. Section 85.321, titled “Suit for Damages,” reads:

A party who owns an interest in property or production that may be damaged by another party violating the provisions of this chapter that were formerly a part of Chapter 26, Acts of the 42nd Legislature, 1st Called Session, 1931, as amended, or another law of this state prohibiting waste or a valid rule or order of the commission may sue for and recover damages and have any other relief to which he may be entitled at law or in equity. Provided, however, that in any action brought under this section or otherwise, alleging waste to have been caused by an act or omission of a lease owner or operator, it shall be a defense that the lease owner or operator was acting as a reasonably prudent operator would act under the same or similar facts and circumstances.

Tex. Nat. Res.Code § 85.321. The court of appeals held that section 85.321 creates a private cause of action for damages resulting from statutory violations. We agree.

In construing statutes, this Court starts with the plain language of the statute. McIntyre v. Ramirez, 109 S.W.3d 741, 745 (Tex.2003). The language of section 85.321 clearly creates a private cause of action. A party whose interest in property is damaged by another party violating provisions of a conservation law of this state or a Texas Railroad Commission rule or order “may sue for and recover damages” and other relief to which the party may be entitled. Tex. Nat. Res.Code § 85.321. Section 85.321 also expressly provides a defense to civil actions for lease owners and operators acting as a reasonably prudent operator would act under the same or similar circumstances, adding more credence to the conclusion that section 85.321 creates a private cause of action. Id.

This Court previously reached the same conclusion. In HECI Exploration Co. v. Neel, royalty owners sued their lessee for failing to notify them that the lessee sued the operator on an adjoining tract whose overproduction of oil, in violation of Railroad Commission rules, damaged the common reservoir. 982 S.W.2d 881, 884 (Tex.1998). The court of appeals held that the lessee violated an implied covenant to notify the royalty owners of an intent to sue the offending operator. Id. at 884–85. This Court held no such implied covenant exists because the lessee's suit against the adjoining operator does not collaterally estop the royalty owners from suing separately under section 85.321. Id. at 890–91. “When a mineral or royalty interest owner is damaged by a violation of the conservation law of this state or a Railroad Commission rule or order, section 85.321 of the Texas Natural Resources Code also expressly provides for a damage suit against the offending operator.” Id.

Relying on Magnolia Petroleum Co. v. Blankenship, 85 F.2d 553, 556 (5th Cir.1936) as persuasive authority, Exxon urges the Court to disregard HECI Exploration and hold that section 85.321's predecessor, article 6049c, did not create a private cause of action. Magnolia involved a dispute between two lessees producing from a common reservoir. Id. at 554. Magnolia produced oil from several wells on a tract of eighty-one acres while Blankenship had one well on half an acre. Blankenship had sunk his well without a permit. The Railroad Commission sued him, seeking a $1,000 penalty. Blankenship countered for a certificate authorizing him to operate the well. The trial court authorized the penalty and also ordered the certificate of operation. Magnolia appealed the decision, contending that the trial court did not have authority to order the certificate of operation and...