Magnolia Coal Terminal v. Phillips Oil Co.

• Decision Date: 11 March 1991
• Docket Number: Nos. 90,s. 90
• Citation: 576 So.2d 475
• Parties: MAGNOLIA COAL TERMINAL v. PHILLIPS OIL COMPANY. C 1646, 90 C 1663.
• Court: Louisiana Supreme Court

Page 475

576 So.2d 475

MAGNOLIA COAL TERMINAL v. PHILLIPS OIL COMPANY.

Nos. 90 C 1646, 90 C 1663.

Supreme Court of Louisiana.

March 11, 1991.

Concurring Opinion by Justice

Calogero March 15, 1991.

On Application on Denial of

Rehearing May 23, 1991.

James J. Coleman, Sr., Charles B. Johnson, Peggy Wallace, Henry Lazarus, Coleman, Dutrey & Johnson, Allan Kanner, Reuben A. Guttman, Joel Waltzer, Kanner & Guttman, P.C., Mack A. Barham, Robert Arceneaux, Lee A. Archer, Barham & Markle, for plaintiff-applicant Magnolia Coal Terminal.

Charles D. Marshall, Jr., David N. Schell, Jr., Milling, Benson, Woodward, Hillyer, Pierson & Miller, New Orleans, William G. Paul, John L. Williford, Kenneth E. Rogers, David M. Whitney, Patrick H. Martin, for defendant-respondent Phillips Petroleum Oil.

George C. Gibson, Andre Phillips La Place, James Berry St. John, Jr., Craig Wyman, Robert T. Jorden, Charles B. Griffis, III, Chevron, U.S.A. Inc., Douglas A. Molony, CNG Producing Co., Malcolm Johns, Louisiana Land & Exploration Co., Frederick J. Plaeger, III, New Orleans, Sonat Exploration Co., Philip C. Wrangle, Houston, Tex., Texaco Inc., Shirley C. Friend, John D. Fitzmorris, Jr., New Orleans, Amoco Production Company, Millard E. Matthews, Jr., Houston, Shell Offshore Inc., Susan K. Carter, New Orleans, J. Patrick Batchelor, Commissioner of Conservation, State of Louisiana, George C. Gibson, New Orleans, Louisiana, Department of

Environmental Quality, Keith W. Petrie, Baton Rouge, amicus curiae.

WATSON, Justice.

Seeking damages to a 2,200 acre tract of land, the plaintiff/owner, Magnolia Coal Terminal, alleges that defendant/lessee, Phillips Oil Company, and Phillips' predecessors, have: failed to control oil seepage from a well which was not properly plugged and abandoned; failed to properly clean up the well site; failed to restore the surface to its original condition; and failed to comply with statewide order 29-B of the department of conservation. Plaintiff's petition alleges both past and continuing damage to the property, which has resulted in a permanent diminution of its market value.

After this suit was filed on September 27, 1985, Phillips Petroleum Company (the current name of defendant) filed a motion to transfer the case to federal court on the ground of diversity of citizenship. Magnolia Coal Terminal is a partnership. One of the partners, International Tank Terminals Ltd., is a corporation which, like defendant, is organized under the laws of the State of Delaware. Because complete diversity was lacking, the case was remanded to the civil district court for the Parish of Orleans. See Carden v. Arkoma Assoc., --- U.S. ----, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990).

Remand was ordered by the federal court on December 11, 1985, and trial in state court fixed for March 17, 1987. Phillips asked for a continuance on March 9, 1987, alleging that more time was needed for discovery. Trial was reset for May 26, 1987. On May 4, 1987, Phillips filed exceptions of no right and no cause of action on the ground that Magnolia had failed to exhaust its administrative remedies before the commissioner of conservation. The trial court overruled the exceptions and the court of appeal denied supervisory writs. This court denied supervisory writs on June 5, 1987.

The trial court heard evidence for thirteen days in May and June of 1987 and concluded that the oil well was still leaking and that Phillips had breached its contractual obligation to restore the surface of the leased premises. The trial court rejected Phillips' contention that plaintiff's only remedy was specific performance and awarded monetary damages. Calculating the cost of properly plugging the well at $2.1 million, the cost of clean up at $2.1 million and miscellaneous damages at $300,000, the trial court awarded total damages of $4.5 million.

The commissioner of conservation refused to defer to the ongoing proceedings even though this court declined review. After trial was concluded on June 22, 1987, the commissioner held a public hearing on June 25, 1987, in which Magnolia did not participate. Subsequent to the trial court judgment on September 3, 1987, the commissioner issued contradictory findings on March 11, 1988. The commissioner decided that the well had been properly plugged and abandoned; that the well was not leaking; and that Phillips should submit a plan for clean up and remediation of the site.

On appeal, defendant's exceptions of no right and no cause of action were sustained. Magnolia Coal Terminal v. Phillips Oil, 561 So.2d 732 (La.App. 4th Cir.1990). The court of appeal concluded that resolution of the underlying factual issues in the litigation: whether the well was properly plugged; whether it was leaking; and what procedures should be followed for clean up and remediation of the site were within the exclusive original jurisdiction of the commissioner of conservation. A writ was granted to review the judgment of the court of appeal. 568 So.2d 1068 (La.1990).

FACTS

The tract is situated in Plaquemines Parish, Louisiana, about halfway between New Orleans and the mouth of the river. A strong consideration in Magnolia's purchase was the property's 2.2 mile frontage on the Mississippi River. Magnolia obtained an option to purchase the property on March 13, 1981, for $655,000 and subsequently renewed the option for an additional $655,000. Magnolia acquired title on December 23, 1981, paying $6.5 million in a cash sale, with the original owners, the Vaccaro and D'Antoni families, retaining the mineral rights. Under the mineral lease on the property: "Lessee shall pay for all damages caused by Lessee's operations, including damage to ... soil and other property...." (P-136)

The sale of the tract to Magnolia was negotiated by attorney Frank LaGarde. During the option period, LaGarde said the prospective purchasers became concerned about oil on the property. At a meeting on July 14, 1981, representatives of Aminoil USA, Inc., Phillips' predecessor, which later merged with Phillips, agreed to rectify the problems at the site. The Aminoil personnel said that the well had never been properly plugged and abandoned and they were going to take care of the problem. In a letter dated July 17, 1981, Aminoil acknowledged responsibility for properly plugging the well and cleaning the property. In pertinent part, the letter said:

"During the course of our conversation July 14, 1981, in the office of Mr. Frank LaGarde, the following agreements were made relative to Aminoil's cleaning up the surface location of the State Lease 2513 Well, to wit:

1. That Aminoil will, in a good and workmanlike manner, proceed with its efforts to plug and abandon said well. It was noted that Aminoil is currently studying the engineering problems involved in such operations but will move forward on the project with all expeditiousness ...

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3. That Aminoil will proceed with all due diligence in draining all of the pits for said well and restoring the surface of the property to a usable condition. The problems involved with such restoration were discussed and it was recognized that it may take Aminoil up to two (2) years to complete this operation." (P-6 and P-49, duplicate exhibits)

Because it has adjacent deep water navigation, the property is an outstanding industrial site. Construction bids for a coal terminal were obtained in the spring of 1982. The total cost of the facility, including capitalized interest, land cost and working capital, was projected at $86 million. Magnolia spent $3,828,000 for engineering and other preliminary construction costs.

Ingram Industries, one of the partners in Magnolia Coal Terminal, had guaranteed $43 million of the letter of credit involved in the terminal project. The company will no longer undertake such a guarantee because the danger of spontaneous combustion in coal, a significant problem in any coal facility, is increased by the oil pollution. It is impossible to store coal in an oil polluted area.

There are two major coal terminals in the New Orleans area and a third bulk terminal. There is an International Marine terminal just above the Magnolia location. Ingram Barge Company operates coal barges and would benefit from having its own terminal. With its own terminal, Ingram's barges would receive preferential treatment which would reduce demurrage costs, the holding charges.

The terminal proposal had anticipated fleeting 107 barges in the river adjacent to the property. It would be dangerous to do that in the presence of leaking oil. Without absolute assurance that oil is not leaking or traveling underground, it is impossible to insure, finance or build a coal terminal on the property.

Waldemar S. Nelson, chairman of the board of a firm of consulting engineers, testified as an expert in engineering with extensive experience evaluating waterfront sites for marine facilities. A stable river bank, adjacent deep water and a long straight shoreline comprise an ideal industrial riverside terminal location. Nelson's company designed this terminal and many plants on the river for major companies, including Dow Chemical, Exxon, Union Carbide, and BP Oil. The company has designed several coal facilities and did the design to convert Freeport Sulphur's Port Sulphur terminal to a coal terminal.

A commercial coal terminal requires a large storage area because it is necessary to separate the commodity by owners and also by grades. This project, designed to have ground storage for a million tons of coal, was to be a major terminal capable of handling 12 million tons of coal a year, primarily exports barged from the inland coal fields, transferred to storage and then loaded on ships.

Robert W. Merrick testified as an expert real estate appraiser and broker with an MAI designation. In 1980, when he took the Magnolia representatives to look at potential sites for a coal terminal, crude oil was selling at $35 a barrel and there...