659 ExxonMobil Corp. v. Lazy R Ranch, LP, 511 S.W.3d 538 (Tex. 2017)

Wednesday, February 14th, 2018

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

ExxonMobil Corp. v. Lazy R Ranch, LP ExxonMobil Corp. v. Lazy R Ranch, LP, 511 S.W.3d 538 (Tex. 2017) (Discovery rule on soil and groundwater contamination), held that there is nothing inherently undiscoverable about the possibility of contamination from oil and gas operations and surface spills, and therefore the discovery rule does not apply. ExxonMobil Corporation conducted oil and gas operations on the Lazy R Ranch for almost sixty years. Soon after ExxonMobil sold its operations in 2008, the landowner retained a registered environmental manager to investigate any possible contamination on the ranch. In a report dated March 31, 2009, the environmental manager identified four areas, previously under ExxonMobil’s control, affecting 1.2 acres on the 20,000 acre ranch, where hydrocarbon contamination exceeded levels set by state law. He warned that there was a threat of groundwater contamination. The landowner sued ExxonMobil for damages for remediation that landowner estimated would cost $6.3 million, but landowner later amended to drop the damages claim to seek only a mandatory injunction for remediation at whatever cost. According to the landowner, the required remediation would necessitate the removal of significant volumes of contaminated soil and decontamination of the groundwater. ExxonMobil moved for summary judgment based on limitations and on other grounds, and the trial court granted the motion.

Generally, a cause of action accrues and limitations begins to run when facts exist that authorize a claimant to seek judicial relief. For summary judgment purposes, the environmental manager’s report established that four ranch sites were contaminated as of March 2009. ExxonMobil did not argue that anyone else was responsible for the contamination, but only that the landowner’s deposition testimony shows that any contamination occurred before 2005. The landowner had testified that she had noticed oil spills on the Ranch for years. With respect to two of the four sites that had long been abandoned, ExxonMobil presented evidence that neither was contaminated after 2005. As to the other two sites, there was no conclusive evidence as to whether contamination did or did not occur after 2005.

Although the landowner invoked the discovery rule to defer the accrual of the landowner’s claims and to delay commencement of the limitations period, the Supreme Court refused to apply the rule, holding that there was nothing inherently undiscoverable about the possibility of contamination that kept the landowner from employing the expert sooner. The Supreme Court affirmed summary judgment as to the two long-abandoned sites and reversed and remanded as to the other two sites.

Under Texas law, recovery of damages for a permanent injury to real property is limited to the difference in value before and after the injury. Even if the injury is temporary, the cost to repair the injury cannot be recovered when it exceeds the land’s loss in value due to the injury (the “economic feasibility exception”). Whether a landowner can sue for an injunction requiring an operator to perform remediation to prevent further contamination, when the cost of remediation would exceed the value of the land, thus circumventing the economic feasibility exception, appeared to be a significant issue in the case and attracted several amicus briefs. The Supreme Court refused to consider the issue because it was not addressed in ExxonMobil’s motion for summary judgment.

The significance of this case is the holding that there is nothing inherently undiscoverable about the possibility of contamination from oil and gas operations and surface spills from oil and gas operations and therefore the discovery rule does not apply.