Top 5 Issues in Today’s Hydraulic Fracturing Litigation

A concern regarding the cleanliness of our water supply is not a new issue.  Litigation revolving around the cleanliness of our water supply is increasing daily thanks in part to hydraulic fracturing.  Hydraulic fracturing—often referred to as “fracking” or “hydrofracking”—and horizontal drilling are not new ways to produce oil and gas; the use of hydrofracking has simply increased recently.  Hydrofracking was first tested in 1903, and first used commercially in 1948.  By 1988 hydrofracking had been applied to one million wells, and currently about 35,000 wells per year experience some measure of hydrofracking.  As the use of hydrofracking has increased so have the concerns, resulting in an increase in related litigation.  Part of the explanation for the increased hydrofracking litigation is because fracking is now being used in jurisdictions that are not familiar with oil and gas drilling.  A majority of the litigation revolves around concerns of the potential effects on groundwater and chemical composition of the liquids used in hydrofracking, but property, tort, and contract claims have grown exponentially in relation to hydrofracking. This Blog post seeks to explore the top 5 hottest legal issues in hydraulic fracturing litigation.

In the most basic and simplified terms possible hydrofracking is a process in which fluid (“frac fluid”) is injected into a well at extremely high pressures to either widen or deepen existing cracks, or to create new fractures, allowing for the subsequent extraction of oil or gas from shale formations found thousands of feet below the ground.  This frac fluid constitutes ninety-eight to ninety-nine and one-half percent water and sand.  The EPA estimates between 50,000 to five million gallons of water are needed to create a well.[1] Depending on the particular site, fifteen to eighty percent of the frac fluids may return to the surface (known as “flowback”).  There are a few different options available to operators regarding the flowback of frac fluids, but the growing concern is that the quality and quantity of the water supply is adversely affected from hydrofracking.  The majority of the issues in hydrofracking litigation relate to the unknowns with the drilling and fracturing is occurring so far below ground.

1. Proving each element for a successful claim.  As of the beginning of 2013 there were over 100 cases relating to hydrofracking.[2]  Over thirty cases specifically relating to the adverse impact on water supplies have been filed with few progressing past discovery.[3]  While there are a wide variety of fact patterns and legal theories in each claim, many similarities exist.  The lynchpin for most cases is causation, whether the defendant’s conduct harmed the plaintiff.[4]   Making causation more difficult to prove, some defendants have requested courts to enter modified case management orders (“MCMOs”).[5]  MCMOs require plaintiffs to specifically make a prima facie showing of exposure, injury, and causation prior to full discovery.  Issuing MCMOs is controversial and not always done.  Courts are hesitant to enter an MCMO when there are only a small number of parties involved.  In Florida the courts are split on entering MCMOs, half of the time MCMOs have been requested the courts have granted them.  The determinative factor, according to a Florida district court, is efficiency:  “it is neither efficient nor fair to require defendant to proceed on the issues implicated by plaintiffs’ discovery until after plaintiffs have adequately demonstrated a prima facie basis for the allegations in the complaint.”[6]  When there is only a single party on each side, a MCMO order has been found “patently unwarranted.”[7]

One question that arises when courts are determining whether defendants are subject to liabilities is whether hydrofracking activities are abnormally dangerous and subject to strict liability.  Liability still exists when engaged in an abnormally dangerous activity, despite exercising the utmost care to prevent harm.  While no court has decided whether hydrofracking is an abnormally dangerous activity, the United States District Court for the Middle District of Pennsylvania speculated that it might be difficult for plaintiffs to meet three of the six factors.[8]  While it is not contested that there are occurrences of harm and danger in the areas of hydrofracking, no plaintiff has asserted a successful claim.

2. Subsurface property rights.  Hydrofracking claims are brought under the law of contracts, property, and torts, among others.  The most difficult hydrofracking issue, however, concerns the issue of subsurface property rights.  While surface issues involve aspects of both property and torts, the property aspect has proved more indicative of how an issue will be settled and determinative of the tort aspect.[9]  While the surface rights related to hydrofracking are relatively easily determined, the subsurface rights—concerning the movement of fissures, frac fluids, and proppants across boundary liens—are much more difficult to determine.[10]  Many different applications and tests have been applied to ease this difficult determination.  One such theory involves the application of the legal maxim cujus est solum ejes est usque ad coelum et ad inferos (“ad coleum”), which translates to mean: “To whomsoever the soil belongs, he owns also to the sky and the depths.”  Under this black and white doctrine, any fissure, frac fluid, or proppant that cross a boundary line results in a trespass.  State courts, as recently as 2008, however, have not been willing to apply this doctrine, finding the maxim “has no place in the modern world.”[11]

The Texas Supreme Court, in Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008),  considered whether the subsurface hydrofracking that extended into an adjacent property was a trespass for which the value of gas grained may be recovered as damages. The rule of capture, which generally gives ownership to the first person to “capture” an item, here oil and gas, prevented the awarding of damages.  The court held the rule of capture “gives a mineral rights owner title to the oil and gas produced from a lawful well bottomed on the property, even if the oil and gas flowed to the well form beneath another owner’s tract.”[12]  While it appears very unlikely to bring a successful claim for trespass, the few courts that have heard the arguments did not decide the primary issue of whether or not a trespass occurred; only that the rule of capture bars certain recovery and the ad coelum maxim is outdated.

3. Unstable regulatory climate.  Fracking is subject to the regulatory oversight of four US agencies and specific state enacted regulations.[13]  From the federal perspective, the primary regulatory agency is done by the EPA under the Safe Drinking Water Act (“SWDA”).  SWDA was enacted to assure that water supply systems serving the public meet minimum standards for protection of public health.  This also allows the EPA to regulate the injection of fluids that may result in contamination of underground sources of drinking water.  Recent legislative amendments, however, have made one thing clear:  SWDA does not regulate the fluids, other than diesel fuels, used in hydrofracking.[14]  More scrutiny is occurring with fracking.  In 2010 Congress passed a bill funding and directing the EPA to conduct a study on the relationship between hydrofracking and drinking water.[15]  In May of 2013, H.R. 1921, containing two amendments to the SDWA, was introduced in the House of Representatives with a similar bill introduced in the Senate in June of 2013.[16]  These amendments would amend the definition of underground injection to now include hydraulic fracturing, and create a disclosure requirement for chemicals used in hydrofracking.

            States can, and do, enact legislative regulations that extend further than federal regulations.  New York, Pennsylvania, and Texas are among a few states that have enacted regulations, which other states have mirrored when enacting their own regulations.  These state regulations are more demanding:  expressly including fracking under statutes and regulations covering oil and gas exploration; requiring drilling logs and data along with pressure test data for each well; disclosure of exact ingredients of frac fluids; specified disposal regiments for frac fluid returning to the surface; and replacement or remediation of contaminated surface or groundwater assets.  Operators complying with federal and state regulations can also find themselves subject to county and local government regulations.

            The Florida House of Representatives passed House Bill 743, the Fracturing Chemical Usage Disclosure Act.[17]  Despite fracking not having yet occurred in Florida, this proactive bill is attempting to alleviate Floridians from dealing with the current issues surrounding fracking.  There are three other bills relating to natural gas drilling and storage in Florida, but this is the only bill to have currently passed.[18]  Despite the lack of support from environmental groups, companies have shown an interest in drilling in Florida, and geologists believe the Panhandle would be the most viable fracking location in Florida. While Florida is taking a proactive approach at fracking legislation, most states have done the opposite; enacting legislation in light of the negative events that occurred. As the law develops in the area of hydrofracking, legislative action can be expected to add to the mix of possible remedies and defenses.

            In light of fracking being an area of federal, state, and local concern preemption is becoming a source of increased litigation.  Regulations have raised questions about state preemption of municipal land use and zoning powers.  In a few states courts have found that local governments may regulate where drilling occurs, but not how it occurs.  This is an issue of constitutionality, which only expands the potential claims and defenses available.

4. Gamut of potential claims.  Hydrofracking is a complex operation, sometimes resulting in extremely detail oriented and complex litigation.  In addition to constitutional preemption issue (which has not yet been raised) cases have been brought on claims of negligence, nuisance, trespass, strict liability, breach of contract, fraud, statutory violations, and medical monitoring to list a few.  With the list of potential damages and defenses equally daunting, it is no surprise new cases arise almost daily.  Despite the vast possible theories that suits can be brought under, no case has established precedent.  While there is a broad array of theories to bring a claim under, this is also a double edged sword.  Courts do not have precedent to support a decision and will likely defer making a decision until other decisions have been made.  Due to the gamut of potential theories available courts are quick to dismiss a case or issue an MCMO.  Claims can also be brought against the designers and manufacturers of drilling- and well-related equipment, but, to date, no one seems to have brought such a suit.  The large array of legal theories available to plaintiffs ideally should create an easy route to a successful claim; however, in light of the plentiful theories available courts seem to have less mercy to plaintiffs.  The theories available will likely change and possibly grow as the law and legislative action develop.

5. Greater forces at play.  The influx in litigation and the potential ill-natured effects of hydrofracking are not a secret to the lawmakers.  The negative aspects of hydrofracking are often overlooked in light of the benefits:  creation of jobs, the U.S. becoming more energy independent, money made by the mineral owners in bonuses and royalty payments, job and tax revenue that fracking makes possible, and the size of potential reserves now available with fracking.  Recently, insurance providers are weighing the pros and cons associated with hydrofracking.  Despite industry operators applying best practices, insurance companies are not convinced and are hesitant whether to provide insurance at all.  Covering environmental risks is nothing new to insurance companies, but, there are too many unknowns and a lot of conflicting information.  An article in the New York Times[19] notes that as fracking has increased in the country, so has water pollution. The wastewater that flows back as a result of fracking is often laced with highly corrosive salts, carcinogens like benzene, and radioactive elements like radium; additionally, more carcinogenic materials are potentially added from the chemicals used in hydrofracking.  According to documents from the EPA, state regulators and drillers, environmental and health related dangers are greater than previously understood.

The dangers—discharging wastewater into rivers containing levels of radioactivity far greater than the levels the federal regulators allow—are among the many reasons citizens in Florida are concerned about fracking.  Some Floridians think the proactive attempt to pass legislation regulating natural gas drilling is a ploy.  The alleged dangers associated with hydrofracking may be greater in Florida due to Florida’s fragile aquifers and high water table.  Currently, geologists do not think Florida is a very likely place for fracking, but companies have shown interest in Southwest Florida and the Panhandle.

Despite the numerous studies finding an increased level of chemicals in water near wells, numerous federal, state, and local regulatory agencies overseeing fracking, applicable sections of the United States Code, and the President of the United States getting involved social desirability can determine the outcome. The Supreme Court of Texas excused a trespass claim when the conduct is viewed as socially desirable.[20]  President Obama, in 2011, directed a panel to study the effects of shale gas production on health and the environment.  One of the suggestions that resulted from the study calls for a disclosure of all the chemicals used in frac fluids:  no federal law currently requires this disclosure.  Additionally, President Obama possesses enforcement authority under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).[21]  CERCLA provides broad authority for the federal government to respond to released or threatened releases of hazardous substances into the environment. Potentially responsible parties that may be held liable include past and current owners and operators of facilities where there is a release or threatened release of hazardous substances, individuals who arrange for disposal or treatment of hazardous substances, individuals who transported hazardous substances and selected the site for disposal and treatment.  Certain exclusions or exemptions from the statute may explain why CERCLA has not been specifically referenced or used in a suit.

Despite the abundance of evidence showing the alleged negative effects associated with hydrofracking, a reoccurring theme is turning a blind-eye as a result of the benefits that hydrofracking yield.  The results of the litigation, as well as the future of fracking depend upon how courts interpret local ordinances, state and federal laws and regulations, and whether current legislation is amended.  If exemptions for hydrofracking remain, litigation will continue to increase. Industry operators can help themselves by continuing to implement best practices, promote transparency, and transition to greener frac fluids. The issue, however, remains unresolved and will play out over the next few years until the legislative and judicial branches create and enforce the law, respectively.