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Sweet Lake Land And Oil Co., LLC v. Oleum Operating Co., L.C.

Court of Appeals of Louisiana, Third Circuit

May 31, 2017

SWEET LAKE LAND AND OIL COMPANY, LLC
v.
OLEUM OPERATING COMPANY, L.C., ET AL

         APPEAL FROM THE FOURTEENTH JUDICIAL DISTRICT COURT PARISH OF CALCASIEU, DOCKET NO. 10-1272 HONORABLE DAVID A. RITCHIE, PRESIDING

          Guy E. Wall Paul E. Bullington Jonathan R. Cook Sara Lewis Wall, Bullington & Cook, LLC ATTORNEY FOR PLAINTIFF/APPELLANT Sweet Lake Land and Oil Company, LLC

          Paul Matthew Jones Brian W. Capell Liskow & Lewis ATTORNEY FOR DEFENDANT/APPELLEE Oleum Operating Company, LC and AKSM, L.C.

          Court composed of Sylvia R. Cooks, John D. Saunders, and Shannon J. Gremillion, Judges.

          SYLVIA R. COOKS JUDGE

         This is an oilfield cleanup suit for restoration of property that was first filed in 2010. Sweet Lake Land and Oil Company, LLC filed suit against Oleum Operating Company, L.C., AKSM, L.C., and other oil and gas operators, lessees and assignees alleging that their operations caused environmental damage to its property.

         The Sweet Lake property at issue is located in Calcasieu Parish and has historically been subject to oilfield exploration and production activities. The entire area of the Sweet Lake property comprised approximately 199 acres. The alleged contaminated areas at issue in this appeal comprised approximately 12 acres of this land. In 1947, Sweet Lake granted an oil, gas and mineral lease (hereafter "the 1947 Lease"). British Petroleum Corporation (hereafter BP) and its predecessors operated on the property from 1947 until 1989 under that lease. The record establishes BP drilled and operated numerous wells on the property pursuant to the 1947 Lease. Sweet Lake maintained in the course of operating the wells, BP produced brine or processed water, which it stored in pits near the various well sites. Processed water is an oilfield waste product that contains barium, arsenic and salt levels greater than seawater. Sweet Lake maintained BP even used a pit after they were outlawed in 1986. Sweet Lake also contended from 1985 until 1989, BP closed the pits improperly, leaving behind oil, barium, arsenic, benzene and salt.

         From 1989 until 2008, the field was operated by a several smaller operators, including Flash Gas & Oil, Janex Oil, Arbol Resources, J&J Onshore and Oleum, which did not use pits. These companies however continued to operate under the 1947 Lease and continued oil production on Sweet Lake's land.

         Prior to the lawsuit in question, in 2000, Sweet Lake sued J&J Onshore, an operator under the 1947 Lease, because it had received an environmental report (the Covington Report) showing potential contamination at an oil facility located on the property covered by the 1947 Lease. During the pendency of the lawsuit, on May 19, 2000, pursuant to a Bill of Sale, J&J assigned its remaining interest in the 1947 Lease to Oleum. Sweet Lake added Oleum to the lawsuit. Sweet Lake then settled with Oleum, asserting it believed it could work with Oleum through the remaining issues identified in the environmental report, including Oleum restoring the C-3 well and others to 29-B requirements. The settlement required Oleum to plug and abandon certain wells within a specified period of time. Sweet Lake and Oleum also agreed to amend the 1947 Lease in 2003 to reduce the acreage covered by the lease and to provide express restoration obligations. The 2003 Lease Amendment stated that "[w]ithin 6 months of determining that any well among the Nos. C-2, C-3, C-7, C-8, or C-9 Wells have no future utility, Lessee shall plug and abandon the well and restore the surface area around the well to the requirements of Title 43, Statewide Order No. 29-B." Sweet Lake maintains Oleum has not complied with the settlement agreement, contamination still exists and wells remain unplugged.

         In 2005, Oleum assigned the 1947 Lease to AKSM. Oleum and AKSM are family owned companies run by Michael Snell.[1] In 2008, the 1947 Lease expired and Oleum released it. Sweet Lake then granted a new oil and gas lease to AKSM following the release, which covered much of the same property. The 2008 Lease required AKSM to abandon what was referred to as the "Existing Oil Facility" on land located west of and adjacent to the land covered by the lease, and remove any contaminated soil from that area. Sweet Lake contended AKSM did not comply with this lease requirement.

         By the time the instant lawsuit went to trial, only Oleum, AKSM and BP remained. As to Oleum and AKSM, suit against them was based in part on alleged express restoration obligations they assumed in the 2003 Amendment to the 1947 Lease (as pertains to Oleum) and in the 2008 Lease (as pertains to AKSM). Sweet Lake put forth a damages model based on remediation plans that addressed five separate areas of the property. These areas were determined by Sweet Lake's experts to be in need of remediation. The defendants argued Sweet Lake greatly exaggerated the remediation necessary to clean up the areas. It should be noted that Oleum and AKSM basically adopted the remediation plan put forth by BP and did not put forth its own plan or hire any of its own experts to prepare reports or testify at trial.

         The most costly area, referred to as Area 1, involved contamination that occurred at the C-3 wellsite. Sweet Lake's plan for that area anticipated it would require over $40 million to remediate the soil and approximately $8 million to remediate the ground water. The other area remediation plans were significantly less in cost than for Area 1.

         BP presented an alternative remediation plan that totaled around $1.4 million for all five areas, with the bulk of that amount set aside for Area 1. Sweet Lake maintained BP's plans did not meet the 29-B requirements, because a less stringent standard was used.

         Oleum argued Sweet Lake did not originally intend for Oleum to clean up the C-3 Well because one of Sweet Lake's experts testified he did not know if there was contamination there. Sweet Lake maintained the Covington Report indicated there was contamination there, which is why the 2003 Lease Amendment required Oleum to restore that site to 29-B requirements. Oleum also contended its obligation to restore the surface area around the C-3 Well to the requirements of 29-B did not require restoration of underground contamination to soil or groundwater.

         At trial, Sweet Lake also maintained AKSM breached its obligation to remove any contaminated soil from the area surrounding the "Existing Oil Facility" pursuant to the 2008 Lease. AKSM introduced a 2010 report which concluded there was no contamination in the first two feet of soil. Sweet Lake maintained at trial that the area where AKSM removed two feet of soil was limited to a small area to the far north of the facility. Thus, they believed that the report was misleading and their experts countered that the area around the "Existing Oil Facility" was contaminated and had not been restored as required by the 2008 Lease.

         The jury trial was held from May 11, 2015 through May 27, 2015. As to Oleum and AKSM, the jury was asked to determine, among other things, whether environmental damages existed on Sweet Lake's property, whether after July 7, 2003, Oleum breached its restoration obligations under the 1947 Lease as amended in 2003, and whether AKSM breached its obligation to remove contaminated soil from the existing oil facility. On May 27, 2015, the jury returned its verdict, answering in the affirmative that there was environmental damage on Sweet Lake's property, but it determined there was no breach by Oleum or AKSM of their respective obligations under the lease. On the jury verdict form where it asked "[w]ho is responsible for the environmental damage caused to Sweet Lake's property, " the jury checked off only BP and not Oleum or AKSM. The jury verdict form later listed BP as 100% liable for the "damage to Sweet Lake's property." The jury also listed an amount of "1.5 million dollars" in response to the question on the jury verdict form as to "[h]ow much will it cost to clean up Sweet Lake's property?"

         In accordance with the jury verdict, the trial court rendered a judgment on September 11, 2015, finding BP responsible for the environmental damage on Sweet Lake's property. To that end BP was ordered to submit a remediation plan to the Department of Natural Resources (DNR), Office of Conservation, proposing to remediate the property to within applicable regulatory standards. The judgment stated that "Sweet Lake's claims for money damages against BP are hereby dismissed with prejudice." Pertinent to this appeal, the judgment also dismissed with prejudice all claims against Oleum and AKSM.

         Sweet Lake moved for a Judgment Notwithstanding the Verdict (JNOV) and Alternative Motion for New Trial, seeking to set aside the judgment in regard to the jury verdict in favor of Oleum and AKSM. The trial court denied the motion.

         This appeal followed, wherein Sweet Lake asserts the following assignments of error:

1) The jury erred in determining that Oleum did not breach its obligation under the 2003 Lease amendment to restore the property.
2) The jury erred in determining that AKSM did not breach its obligation under the 2008 Lease to remove any contaminated soil at the Existing Oil facility.

         ANALYSIS

         Louisiana Revised Statute 30:29 (also known as "Act 312"), created a special procedure to resolve claims of environmental damage arising from oilfield operations. La.R.S. 30:29 applies to actions under Title 31, the Mineral Code. M.J. Farms Ltd. v. Exxon Mobil Corp., 07-2371 (La. 7/1/08), 998 So.2d 16. Notably, § 29C(1) provides that if the finder of fact determines that environmental damage exists and determines the party or parties who cause the damage, then the court shall order those parties "whom the court finds legally responsible for the damage" to develop a plan of remediation. Under La.R.S. 30:29, property must only be remediated to applicable regulatory standards following a site-specific, defendant-funded, court-approved, and court-supervised remediation plan. See La. R.S. 30:29, et seq. The goal of the new legislation is not "perfect restoration, " and the reasonableness or unreasonableness of a defendant is not a factor in determining the cleanup standard. Id.

         The Louisiana Supreme Court in State v. Louisiana Land and Exploration Co., 12-884 (La.1/30/13), 110 So.3d 1038, 1049-51, stated:

. . . The Act makes no changes to the normal trial procedures established by the Code of Civil Procedure. The only change accomplished by Act 312 is how the damages to remediate property are spent. Under Act 312, landowners do not receive that portion of the remediation damages award needed to fund the statutorily mandated feasible plan; these funds must be deposited into the registry of the court.
The matter proceeds to trial in the same manner as any other proceeding; no provision of the Act changes normal trial procedures. This means pre-trial discovery is conducted and the case proceeds in accordance with the Code of Civil Procedure. Unless a defendant admits responsibility or liability for "environmental damage" as defined by the Act, La.R.S. 30:29(I), all claims, including contractual or private claims, are determined by the finder of fact at trial.

         Following trial, the litigation took two divergent paths. As to Sweet Lake's claims against BP, pursuant to La.R.S. 30:29, the matter proceeded to the Louisiana Department of Natural Resources for the determination of the most feasible plan for remediation of the property. Sweet Lake's claims against Oleum and AKSM for the breach of their express restoration obligations under the respective leases proceeded to a motion for JNOV, which was denied, and now, this appeal.

         It should be noted that, as pointed out by counsel for Oleum and AKSM, the vast majority of Sweet Lake's arguments at trial centered on BP and their actions prior to assigning the 1947 Lease to another operator in 1989. Sweet Lake made it clear to the jury that it was only holding Oleum and AKSM responsible for what happened after 2003; in Oleum's case when it was assigned and then amended the 1947 Lease; and in AKSM's case when it was granted a lease in 2008.

         It was confirmed by all experts for all sides that there was contamination on Sweet Lake's property and it was, to some degree, not in compliance with the applicable law. Although the jury correctly found there was environmental damage on Sweet Lake's property, it also found there was no breach by Oleum of its restoration obligations under the 1947 Lease as amended in 2003 and there was no breach by AKSM of its obligation to remove any contaminated soil from the Existing Oil Facility as set forth in the 2008 Lease. These findings that Oleum and AKSM did not breach their obligations under the respective leases are the issues on appeal.

         I. Oleum's Restoration Obligations Under the 1947 Lease as Amended.

         The 2003 amendment to the 1947 Lease provided that "[w]ithin 6 months of determining that any well among the Nos. C-2, C-3, C-7, C-8, or C-9 Wells have no future utility, Lessee [Oleum] shall plug and abandon the well and restore the surface area around the well to the requirements of Title 43, Statewide Order No. 29-B." It was not disputed by Oleum that it had this obligation. During its closing argument, counsel for Oleum acknowledged as much, stating:

So you got these five wells. Well, what happened, C-2, they're not claiming any damage. C-7 is still in use. The C-8, they're not claiming any damage. And the C-9 is still in use. That's four of the five wells.
Now there's one more well - 'cause, again, we're gonna tell you what we agreed to and tell you why we did it; it's the C-3 well. And what you heard from Dr. Sagrera is that there may be some minor dirt work that needs to be done in that area, and we'd love to do it.

         Thus, we find the record established Oleum had an express obligation to restore the land around the C-3 well to the requirements of Statewide Order 29-B.

         The record also clearly establishes the experts found there was, at a minimum, "some minor dirt work" (although the degree of contamination is greatly disputed by the parties) that needed to be performed in the area around the C-3 well. Donald Segrera, who was BP's soil expert, testified that 0.79 acres around the C-3 well site required restoration. Thus, he proposed a remediation plan for that area, although his plan relied on an exception to the requirements of

          Statewide Order 29-B. John Frazier, another expert called by BP, found contaminated soil at the C-3 well site which would need to be removed. Mr. Frazier also testified there was "[n]o question whatsoever" the contaminated soil he detected on Sweet Lake's property was caused by oil and gas operations. The reports of Approach Environmental and HET, BP's remediation expert, also confirmed contamination at the C-3 well site. Thus, the record is clear that contamination existed in the area surrounding the C-3 well site and that Oleum had an express obligation to restore the land around the C-3 well to the requirements of Statewide Order 29-B. The 2003 Lease Amendment requires that the C-3 be plugged and abandoned within six months after operations are ceased. The record confirms this was not done. The first question then becomes was Oleum prevented from performing this obligation by any actions of Sweet Lake?

         Oleum argues, at trial and again before this court, that it needed Sweet Lake's consent to perform any work on the property. This argument was repeatedly voiced to the jury. During closing arguments counsel for Oleum commented "for us to go out there and do anything on the C-3 well, they have to give us permission to do so." Counsel for Oleum also stated in closing arguments that "there may be some minor dirt work that needs to be done in that area, and we'd love to do it."

         There is nothing in the 1947 Lease, as amended in 2003, that requires Sweet Lake's consent for Oleum to perform the agreed upon remediation work. Further, Oleum did not need written consent under the 2008 Lease granted by Sweet Lake to AKSM because it was not a party to that lease. Thus, we find no merit to Oleum's argument that it needed consent from Sweet Lake to perform its remediation obligation.

         Sweet Lake also notes that even if consent was required, Oleum did not ask for any consent from Sweet Lake to perform any remediation work until approximately four years after suit was filed. This violates the provisions of the 1947 Lease (as amended), which required restoration of the surface area around the well site within six months of cessation of activities at the well. The record established that Oleum plugged the well on July 8, 2009. Thus, the lease required Oleum to perform its remediation obligations by January 8, 2010. There was absolutely no evidence in the record that Oleum was prohibited from remediating the property prior to suit being filed by Sweet Lake in March, 2010.

         Moreover, of particular concern to this court, is the fact we find the testimony by Mike Snell and comments made during closing arguments by Oleum's counsel violated a Motion in Limine granted in Sweet Lake's favor to prevent any reference at trial to any offers, and responses as to any proposed remediation attempts, by Oleum and/or BP. A few months before the originally scheduled trial date, Oleum offered (in participation with BP) to clean up Sweet Lake's property according to the remediation plan put forth by BP. Sweet Lake refused the offer as it believed BP's remediation plan was woefully inadequate and only addressed a small part of the damages incurred.

         Believing Oleum and BP would attempt to "create and introduce irrelevant evidence that is unfairly prejudicial, " Sweet Lake filed a Motion in Limine to exclude any reference at trial to any offers, and responses as to any proposed remediation attempts, by Oleum and/or BP. Specifically, Sweet Lake argued BP and Oleum were attempting to remove any oversight over their remediation of the property. They noted in order to implement a remediation plan, a district court must order the submission of a plan to DNR, who is then required to conduct a public hearing on the plan or plans submitted. The district court retains jurisdiction once the claim is referred to DNR, and upon DNR's recommendation of a remediation plan(s), the district court must decide which plan should be implemented to remediate the property. M.J. Farms v. Exxon, 07-2371 (La. 7/1/08), 998 So.2d 16. Sweet Lake contended the communications from Oleum and BP attempted to circumvent DNR and the district court's authority to monitor the remediation, and did not allow any input from Sweet Lake. Thus, Sweet Lake maintained there was no evidence of any mitigation of damages by Oleum or any failure to mitigate damages on Sweet Lake's part because there was no approval from DNR or the district court to implement Oleum's proposed remediation plan.

         Sweet Lake feared BP, Oleum and AKSM would use these communications between the parties to support their own credibility and attack Sweet Lake's credibility, implying Sweet Lake had no real intention of cleaning up the property. They noted such an argument would mislead the jury, because a finding of environmental damage and Oleum's responsibility for such damage mandates that such funds for remediation be deposited in the court registry and used only for remediation. See State v. Louisiana Land and Exploration Company, 12-884 (La. 1/30/13), 110 So.3d 1038, 1049 (wherein the court stated "Act 312 ensures the damages awarded for remediation will be used only for remediation to the extent necessary to fund the statutorily required plan, into which the La. DNR has input, and which is ultimately approved by the court.")

         On August 13, 2014, the trial judge at that time, the Honorable D. Kent Savoie, ruled the evidence regarding the offer and response was to be excluded from the jury. The trial date was later rescheduled. After Judge Savioe was elected to the appellate court, the Honorable David A. Ritchie was assigned the case. A few days before the rescheduled trial was to take place, Oleum again sent correspondence to Sweet Lake's counsel offering to clean up the property. Judge Ritchie, prior to trial beginning, ...


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