Face Challenges Confidently

292 Exxon Corp. v. Emerald Oil Gas Co.

Friday, September 4th, 2015

Richard F. Brown

The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
Exxon Corp. v. Emerald Oil & Gas Co., 331 S.W.3d 419 (Tex. 2010),held that the Texas Natural Resources Code creates private causes of action for breach of the statutory duties to properly plug wells and to not commit waste and that subsequent owners do not have standing to sue prior owners for injury to realty which occurred before the subsequent owner acquired his interest. Exxon Corporation (“Exxon”) held mineral leases subject to a 50% royalty covering several thousand acres in Refugio County, Texas. During the 1980s, after negotiations to reduce the royalty failed, Exxon systematically plugged and abandoned its wells because the leases were no longer profitable.  After the leases terminated, Emerald Oil & Gas Company (“Emerald”) acquired a portion of the leases and attempted to re-enter the wells, but encountered unexpected difficulties.  Emerald alleged that Exxon caused those difficulties by intentionally sabotaging the wells during Exxon’s plugging and abandonment of the leases.  Among other claims, Emerald sued Exxon for (1) breach of the statutory duty to properly plug a well, and (2) breach of the statutory duty to not commit waste.
Section 85.321 of the Texas Natural Resources Code provides:
A party who owns an interest in property or production that may be damaged by another party violating the provisions of this chapter . . . or another law of this state prohibiting waste or a valid rule or order of the commission may sue for and recover damages and have any other relief to which he may be entitled at law or in equity.
The Texas Supreme Court held that the plain language of the statute creates private causes of action.
The court then analyzed whether Emerald, as a subsequent lessee, had standing to maintain suit. The court explained that the statute’s use of the participle phrase “a party who owns an interest in property . . . may be damaged by another party violating the provisions of this chapter” could support different interpretations.  The phrase could support an interpretation that an owner may bring suit only for an injury concurrent with ownership.  However, the phrase could also support the interpretation that an owner may bring suit for any past violation or violation concurrent with ownership.
To determine the meaning of the phrase, the court looked to the statute’s predecessor, which preserved common law standards. Common law provides that:
[A] cause of action for injury to real property accrues when the injury is committed. . . . The right to sue is a personal right that belongs to the person who owns the property at the time of the injury, and the right to sue does not pass to a subsequent purchaser of the property unless there is an express assignment of the cause of action.
The court clarified some confusion originating in its prior (withdrawn) opinion by noting that its holding did not mean that only Exxon could sue Exxon. The royalty owners could have standing to sue, and actually did sue, but they were too late in this case.
The court also deleted from its withdrawn opinion the holding that Exxon’s actions did not constitute waste. Given that the court concluded Exxon had no standing on the plugging claim, it apparently concluded that no standing on the waste claim was sufficient for its holding, without reaching the question of whether Exxon’s actions did or did not constitute waste.
The significance of the case is the unequivocal holding that the Natural Resources Code creates a private cause of action for damages resulting from statutory violations.  In dictum, the Texas Supreme Court also recognized that there is a statutory defense to such civil claims based on the reasonably prudent operator standard. The holding that a subsequent owner lacks standing to sue for pre-existing damages to realty, absent an express assignment of the cause of action, is consistent with long-standing precedent.