United States District Court, E.D. Louisiana
BOARD OF COMMISSIONERS OF THE SOUTHEAST LOUISIANA FLOOD PROTECTION AUTHORITY EAST et al
TENNESSEE GAS PIPELINE COMPANY, LLC et al, Section:
NANNETTE JOLIVETTE BROWN, District Judge.
Before the Court is Defendants' "Joint Motion to Dismiss for Failure to State a Claim Under Rule 12(b)(6)." Having considered the motion, the memoranda in support, the memoranda in opposition, the statements at oral argument, the Petition, and the applicable law, the Court will grant the motion with respect to each of Plaintiff's claims.
A. Factual Background
Plaintiff in this matter is the Board of Commissioners of the Southeast Louisiana Flood Protection Authority-East, individually and as the board governing the Orleans Levee District, the Lake Borgne Basin Levee District, and the East Jefferson Levee District. The Southeast Louisiana Flood Protection Authority (the "Authority") was created by statute in 2006 to further "regional coordination of flood protection." According to Plaintiff, the Authority's "mission is to ensure the physical and operational integrity of the regional flood risk management system, and to work with local, regional, state and federal partners to plan, design and construct projects that will reduce the probability and risk of flooding of the residents within the Authority's jurisdiction."
Defendants are eighty-eight oil and gas companies operating in what Plaintiff refers to as the "Buffer Zone." The Buffer Zone "extends from East of the Mississippi River through the Breton Sound Basin, the Biloxi Marsh, and the coastal wetlands of eastern New Orleans and up to Lake St. Catherine."
Plaintiff alleges that Defendants' oil and gas operations have led to coastal erosion in the Buffer Zone, making south Louisiana more vulnerable to severe weather and flooding. According to Plaintiff, "[c]oastal lands have for centuries provided a crucial buffer zone between south Louisiana's communities and the violent wave action and storm surge that tropical storms and hurricanes transmit from the Gulf of Mexico." However, "[h]undreds of thousands of acres of coastal lands that once protected south Louisiana are now gone as a result of oil and gas activities." Specifically, Plaintiff asserts that Defendants have "dredged a network of canals to access oil and gas wells and to transport the many products and by-products of oil and gas production." This canal network, in conjunction with "the altered hydrology associated with oil and gas activities, " has caused vegetation die-off, sedimentation inhibition, erosion, and submergence-all leading to coastal land loss. In addition to the initial dredging, Plaintiff maintains that Defendants "exacerbate direct land loss by failing to maintain the canal network and banks of the canals that Defendants have dredged, used, or otherwise overseen." This failure has "caused both the erosion of the canal banks and expansion beyond their originally permitted widths and depths of the canals comprising that network." Looking beyond the alleged effects of the canal network, Plaintiff identifies ten other oil and gas activities that, it claims, "drastically inhibit the natural hydrological patterns and processes of the coastal lands"-road dumps, ring levees, drilling activities, fluid withdrawal, seismic surveys, marsh buggies, spoil disposal/dispersal, watercraft navigation, impoundments, and propwashing/maintenance dredging.
B. Procedural Background
On July 24, 2013, Plaintiff filed suit in Civil District Court for the Parish of Orleans, State of Louisiana. In its petition, Plaintiff asserts six causes of action: (1) negligence,  (2) strict liability,  (3) natural servitude of drain,  (4) public nuisance,  (5) private nuisance,  and (6) breach of contract-third party beneficiary. Plaintiff requests both damages and injunctive relief
... in the form of abatement and restoration of the coastal land loss at issue, including, but not limited to, the backfilling and revegetating of each and every canal Defendants dredged, used, and/or for which they bear responsibility, as well as all manner of abatement and restoration activities determined to be appropriate, including, but not limited to, wetlands creation, reef creation, land bridge construction, hydrologic restoration, shoreline protection, structural protection, bank stabilization, and ridge restoration.
While Plaintiff's six causes of action are all ostensibly state-law claims, Plaintiff contends that "Defendants' dredging and maintenance activities at issue in this action are governed by a longstanding and extensive regulatory framework under both federal and state law specifically aimed at protecting against the deleterious effects of dredging activities." According to Plaintiff, "the relevant components of this regulatory framework... buttress the Authority's claims." Specifically, Plaintiff points to the Rivers and Harbors Act of 1899, which "grants to the [Army Corps of Engineers] exclusive authority to permit modification of navigable waters of the United States and prohibits the unauthorized alteration of or injury to levee systems and other flood control measures built by the United States." Plaintiff also cites the Clean Water Act of 1972 and accompanying regulations, which require Defendants to "[m]aintain canals and other physical alterations as originally proposed; [r]estore dredged or otherwise modified areas to their natural state upon completion of their use or their abandonment; and [m]ake all reasonable efforts to minimize the environmental impact of the Defendants' activities." Further, Plaintiff references the Coastal Zone Management Act of 1972 and related Louisiana coastal zone regulations that "impose... a litany of duties and obligations expressly designed to minimize the adverse ecological, hydrological, topographical, and other environmental effects" associated with oil and gas activities. Finally, Plaintiff cites "[r]egulations and rights-of-way granted across state-owned lands and water bottoms administered by the Louisiana Office of State Lands." According to Plaintiff, "[t]his regulatory framework establishes a standard of care under Louisiana law that Defendants owed and knowingly undertook when they engaged in oil and gas activities." Additionally, Plaintiff avers that these "permitting schemes created numerous individual obligations under Louisiana law between Defendants and governmental bodies of which Plaintiff is the third-party beneficiary."
On August 13, 2013, Defendant Chevron U.S.A. Inc. ("Chevron") removed the case to federal court. On September 10, 2013, Plaintiff filed a "Motion to Remand." All Defendants filed a "Joint Response in Opposition to the Motion to Remand, " and Defendant Tennessee Gas Pipeline Company, LLC, Gulf South Pipeline Co. LP, Southern Natural Gas Company, and Boardwalk Pipeline Partners, LP filed an additional "Response in Opposition to Motion to Remand" addressing jurisdictional issues specific to certain natural gas producers. The Court also received supplemental briefs from HKN, Inc.,  White Oak Operating, LLC,  Liberty Oil and Gas Corporation,  Manti Operating Company,  Mosbacher Energy Company,  Coastal Exploration & Production, LLC,  and Flash Gas & Oil Northeast, Inc. On November 13, 2013, Plaintiff filed an "Omnibus Reply Memorandum in Support of Its Motion to Remand."
The Court denied Plaintiff's Motion to Remand on June 27, 2014. In its Order, the Court explained that federal question jurisdiction exists in this case under an exception to the "wellpleaded complaint" rule providing that federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.
Applying this test, the Court determined that Plaintiff's claims for negligence under Louisiana Civil Code Article 2315, public nuisance under Louisiana Civil Code Article 667, and breach of contract as a third-party beneficiary necessarily raise a federal issue. First, the Court found that Plaintiff's claim "necessarily raises" what duties the Rivers and Harbors Act, the Clean Water Act, and the Coastal Zone Management Act impose upon Defendants. The Court determined that these three federal statutes do not merely present "one of multiple theories" that could support Plaintiff's negligence claim; rather, they are the only specific sources of the duty Plaintiff must establish in order to prevail. Next, the Court determined that Plaintiff's claim for public nuisance necessarily involves the application of federal law because, as with the negligence claim, Plaintiff "necessarily raises" what conduct constitutes "unreasonable interference" under the three federal statutes listed above. Finally, with respect to Plaintiff's claim as a third-party beneficiary for breach of contract, the Court determined that federal law applies to nonparty breach of contract claims where the contract implicated a federal interest, the United States was a party to the contract, and the contract was entered into pursuant to federal law. Accordingly, the Court stated that federal common law applies to the interpretation of the alleged contracts at issue, and, therefore, Plaintiff's breach of contract claim necessarily raises an issue of federal law.
The Court then determined that the federal issues identified above are all disputed and substantial. Specifically, the Court found that the disputed issues implicate coastal land management, national energy policy, and national economic policy-all vital federal interests. The Court additionally noted that Plaintiff's claims amount to a collateral attack on an entire regulatory scheme. Finally, the Court determined that exercising jurisdiction will not disturb the balance of federal and state judicial responsibilities because Plaintiff's claims look to federal law to impose liability on an entire industry for the harms associated with coastal erosion. Accordingly, the Court found that it has jurisdiction over the pending matter because Plaintiff's state law claims for negligence, public nuisance, and breach of contract necessarily raise a federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing the congressionally approved balance of federal and state judicial responsibilities.
On September 5, 2014, Defendants filed the pending "Joint Motion to Dismiss for Failure to State a Claim under Rule 12(b)(6)." Plaintiff filed a memorandum in opposition on October 1, 2014,  and Defendants filed a reply memorandum in further support of their motion on October 15, 2014. Plaintiff filed a supplemental memorandum on November 21, 2014,  and Defendants filed a supplemental response on December 5, 2014. The Court heard oral arguments with respect to this motion on November 12, 2014.
II. Parties' Arguments
A. Defendants' Arguments in Support
Defendants first argue that Plaintiff has failed to allege a cause-in-fact connecting any act by any Defendant to the alleged damages, "instead alleging that an entire industry is liable for its oil and gas activities.'" According to Defendants, the petition alleges enterprise, or market share, liability, which has been rejected under Louisiana law.
Defendants next contend that each of Plaintiff's six causes of action fail to state a claim upon which relief may be granted. First, Defendants argue that Plaintiff cannot state viable negligence or strict liability claims because Defendants do not owe a legal duty under state or federal law to protect Plaintiff against a storm, to restore marshland, or to protect Plaintiff from any increased cost of maintaining levees. Defendants distinguish this case from Terrebonne Parish School Bd. v. Castex Energy, Inc . and Barasich v. Columbia Gulf Transmission Co ., where "plaintiffs at least complained that the defendants' activities had caused, in however attenuated a fashion, damage to plaintiffs' own property." Here, in contrast, Defendants argue, Plaintiff "is suing solely for indirect economic losses-the alleged increased cost of flood control-caused by alleged damage to the property of others." Defendants aver that both Louisiana courts and the United States Court of Appeals for the Fifth Circuit have refused to find a legal duty in a claim of indirect economic injury arising from physical harm to another's property. Additionally, Defendants contend that the three federal statutes implicated by Plaintiff's claims-the Rivers and Harbors Act, the Clean Water Act, and the Coastal Zone Management Act-do not impose a statutory duty on Defendants to protect Plaintiff from indirect economic losses. It is Defendants' position, therefore, that a duty to protect Plaintiff does not arise under either state or federal law.
Next, Defendants argue that, under Louisiana law, claims for natural servitude of drain and nuisance require that the plaintiff and defendant own adjacent property, making them neighbors. Here, according to Defendants, Plaintiff has not stated a viable claim under natural servitude of drain or nuisance because it does not own property adjacent to property owned by any Defendant. Defendants also argue that Plaintiff's natural servitude of drain claim fails for several independent reasons. First, Defendants contend that Plaintiff has not alleged with the requisite specificity that it owns a servient estate and that Defendants own dominant estates, "nor could it when Defendants' rights to access canals are personal servitude rights of use, insusceptible of creating a predial servitude." Additionally, according to Defendants, a natural servitude of drain applies only to the natural flow of water from a higher estate to a lower estate, whereas here, Plaintiff's claims involve the failure of coastal lands to impede storm surges coming from the Gulf.
Finally, Defendants argue that Plaintiff has not stated a claim for breach of contract because it is not a third-party beneficiary to any contract with Defendants. According to Defendants, a license or permit is not a contract under Louisiana law. Moreover, "the permits predate the Board, were issued irrespective of the Board, and were not created to discharge an obligation owed by the permitting authority to the Board." It is Defendants' position that even if the permits constitute contracts, Plaintiff is, at most, an incidental beneficiary without legal authority to sue for alleged non-compliance. Defendants contend that Plaintiff cannot allege any specific permit or right-ofway provision that reflects an intent to benefit the Board.
B. Plaintiff's Arguments in Opposition
Plaintiff argues first that its claims do not rely on enterprise liability theory because:
The Petition contains extensive details about the defendants, including more than 120 pages about each defendant's activities in the Buffer Zone, including permit numbers, locations, dates, and other information identifying where and when each defendant was involved; the referenced permits and rights-of-way contain detailed information about each defendant's obligations.
According to Plaintiff, the petition is sufficiently pled to survive dismissal at this stage in the litigation.
First, Plaintiff contends that it has stated viable negligence and strict liability claims against Defendants based on both the general legal rule of duty found in Louisiana Civil Code Article 2315 and on specific standards of care found in "permits, rights-of-way, and statutory and regulatory obligations." According to Plaintiff, "the rule of law imposed is highly specific to duties and obligations to maintain the defendants' permitted and regulated works within prescribed metes and bounds, and to otherwise operate reasonably, specifically in order to avoid land loss and the resultant increase in storm surge." Plaintiff argues that this duty extends to damages alleged in this lawsuit because "[t]he increased storm surge that results from the defendants' breach of their duties impacts directly on the hurricane protection and flood control structures owned and operated by the plaintiffs here." It is Plaintiff's position that the impact of Defendants' conduct on the Plaintiff's storm protection assets is direct, and there is accordingly an ease of association between the alleged negligent conduct of Defendants and the alleged injury suffered by Plaintiff.
Next, Plaintiff argues that natural servitude of drain and nuisance are predial servitudes, and neither adjacency nor ownership of property are necessary to assert such claims under Louisiana law. According to Plaintiff, "[n]either contiguity nor proximity of the two estates is necessary for the existence of a predial servitude. It suffices that the two estates be so located as to allow one to derive some benefit from the charge on the other." Plaintiff further argues that "Louisiana courts have long recognized that the adjacency requirement in Article 667 depends on the ability of one proprietor's actions to effect another proprietor's property, not on a bright-line test dependent on physical proximity." With respect to ownership of the property, Plaintiff argues that Defendants possess or have possessed temporary ownership rights over dominant estates, which have carried a natural servitude of drain over Plaintiff's property, the servient estate. The extent of ownership rights that each Defendant possesses over the relevant area in which it operated, Plaintiff argues, is a fact-intensive inquiry that is not susceptible to determination on a motion to dismiss. Plaintiff additionally argues that a servitude has been found to exist on tidal lands, and that accordingly a servitude of drain claim may apply to the failure of coastal lands to impede storm surges coming from the Gulf.
Finally, Plaintiff avers that it has stated a viable claim for breach of contract as a third-party beneficiary of the obligations undertaken by Defendants in more than 200 permits issued by the Corps and more than 50 right-of-way agreements. It is Plaintiff's position that the permits, rightsof-way, and regulatory framework impose obligations upon Defendants, and that these obligations manifest an intent to confer a benefit in favor of third parties, constituting stipulations pour autrui under Louisiana law. Plaintiff additionally argues that Louisiana courts have rejected the argument that there can be no stipulation pour autrui unless the third-party beneficiary is named or determinable. Instead, according to Plaintiff, it is permissible to stipulate for undetermined persons as long as those persons are "determinable" on the day on which the agreement is to have effect for their benefit.
C. Defendants' Arguments in Reply
In response to Plaintiff's memorandum in opposition, Defendants reaver that Plaintiff's claims impermissibly rely on enterprise liability. Defendants argue that Plaintiff has failed to plead facts supporting breach of duty based on the permits because "it has provided merely a sampling' of permits and, in fact, many of the permittees are not even Defendants."
Defendants reaver that they do not owe any legal duty that extends so far as protecting Plaintiff from the risk of storm surge or indirect economic injury. They contend that it is "settled jurisprudence" that a federal statute can create a duty only if its purpose is to impose a duty upon the defendant to protect the plaintiff from the particular riskat issue. According to Defendants, neither the Rivers and Harbors Act, nor the Clean Water Act, nor the Coastal Zone Management Act were intended by Congress to impose a duty on Defendants to protect Plaintiff from the increased costs of flood protection.
Defendants additionally argue that, while adjacency of estate is not required for some predial servitudes, servitudes arising under Article 667 apply only to "neighbors." Defendants reaver that the "neighbors" requirement is not met in this case. Defendants additionally contend that "[a]lthough Articles 655 and 656 do not include the word neighbors, ' they require that the properties be sufficiently close that water flows from a higher estate to another that is lower." Defendants reaver that Article 655 concerns only surface waters that "flow naturally from a dominant estate (the estate situated above') to a servient estate (the estate situated below'), " and that Plaintiff has not alleged that Defendants have any property, let alone property "situated above" Plaintiff's property. According to Defendants, Plaintiff seeks to create a new obligation requiring a coastal property owner to preserve a buffer zone to slow storm surge, and such an obligation is not cognizable under a natural servitude of drain cause of action.
Finally, Defendants reaver that the permits and rights-of-way at issue do not create contractual rights, and that Plaintiff has failed to allege any contract with the requisite "clear intention" to benefit Plaintiff. According to Defendants, Louisiana law requires that a stipulation pour autrui be in writing if the contract itself must be in writing, and Plaintiff has ...