Face Challenges Confidently

253 Valence Operating Co. v. Texas Genco, LP

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.
Valence Operating Co. v. Texas Genco, LP, 255 S.W.3d 210 (Tex. App.—Waco, 2008, no pet.), discusses the accommodation doctrine and the reasonableness of an alternate drilling location. Surface owner sought to enjoin mineral owner from straight-hole drilling a gas well on a tract which was a part of surface owner’s ash-disposal landfill for its nearby electrical power generation plant. A temporary injunction was granted. Mineral owner counterclaimed for wrongful temporary injunction and a declaratory judgment that it could drill the straight-hole gas well. In the first trial, the mineral owner won damages in the trial court, but was reversed on appeal in 2006. In the 2006 appeal, the Waco Court of Appeals apparently found that directional drilling was a “reasonable” alternative and implicitly found that the mineral owner would have to bear the increased cost. Nevertheless, the surface owner must first show “that any alternative uses of the surface, other than the existing use, are impracticable and unreasonable under all the circumstances.” That opinion also required a broad-form submission of the issue to the jury.
In the second trial, the jury found for the surface owner on all issues, and a permanent injunction was issued.  The court of appeals affirmed.
In Texas, the dominant mineral estate has the right to reasonable use of the surface estate to produce minerals, but the right must be exercised with due regard for the rights of the surface estate owner. The accommodation doctrine takes the concept of “due regard” and balances the rights of the surface and mineral owners in the use of the surface. The court relied heavily on Getty, Haupt I, and Haupt II, and it discussed in detail the accommodation doctrine, the elements that make up the accommodation doctrine, and the burden of proof.
“Where there is an existing use by the surface owner which would otherwise be precluded or impaired, and where under the established practices in the industry there are alternatives available to the [mineral owner] whereby the minerals can be recovered, the rules of reasonable usage of the surface may require the adoption of an alternative by the [mineral owner]” (emphasis added). The mineral estate is the dominant estate, and if there is but one way to produce the minerals, the mineral owner has the right to pursue his use. But the court emphasized that if there is another way to produce the minerals, one which permits the surface owner to continue his use (especially when there is only one reasonable manner in which the surface may be used), and one which precludes the surface use, the mineral owner must use the alternative that permits continued surface use. A comparison of the two opinions suggests that the Waco Court of Appeals leaned much harder in favor of the surface owner in the second opinion. The first opinion could be read to hold that the mineral owner could be forced to the alternative site only if there was only one use of the surface and that use would be destroyed. Chief Justice Gray’s recusal changed the composition of the court on the second opinion.
On appeal, mineral owner asserted that the accommodation doctrine was being improperly expanded by the trial court which was forcing mineral owner to drill off the lease.
The court of appeals noted that in order for an alternative drill site to be reasonable under the accommodation doctrine, it must be available on the leased premises. Although there was considerable evidence and testimony at trial about an off-lease site, there was also evidence about on-lease sites which mineral owner did not challenge. The court stated that mineral owner’s complaints were overruled because there was “legally and factually sufficient evidence of on-unit locations outside of the actual ash disposal area.” Therefore, while the case highlights the difficulties of trying the case and submitting the issue to the jury, it does not change existing case law which requires that the alternative drill site be available on lease. Mineral owner specifically complained on appeal (without success) that when there is testimony on more than one alternative site, the broad form submission could not correctly submit the issue.
Mineral owner also complained that the evidence was insufficient to show that the well would substantially impair the surface owner’s existing use of its landfill. The court noted that although ash had not yet been deposited in this portion of the landfill, disposal in one cell was near completion and about half of another had been prepared with a clay liner for depositing ash. Further, topsoil and clay had already been mined for the use in these cells. The court of appeals held that this was sufficient legal and factual evidence to support the jury’s findings that this was an existing use of the surface, and the jury was free to reject or believe the arguments presented at trial.
On the first appeal, the Waco Court of Appeals directed that the issue should be submitted as a single broad-form submission. Because there were multiple alternate sites considered at trial, the broad-form submission left room to wonder at the jury’s finding. The court devoted a lengthy part of its opinion to a tortured analysis in support of the submission. However, Getty Oil Co. v. Jones specifically held that “A single or multiple issue submission may be in order depending on the facts and circumstances in a given situation.”
The significance of the case is that it continues to ignore economics in requiring mineral owner to relocate to an alternate site and drill directionally. As submitted, the jury was asked not whether directional drilling was a reasonable alternative, but whether directional drilling provides reasonable access.