496 Forest Oil Corporation v. El Rucio Land and Cattle Company, Inc.

Monday, February 1st, 2016

Richard F. Brown

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

Forest Oil Corporation v. El Rucio Land and Cattle Company, Inc. held that the Texas Railroad Commission does not have exclusive or primary jurisdiction to determine remedies for claims for environmental contamination based on tort, damage to real property, or contract. Forest Oil held a mineral lease and operated a natural gas plant on the McAllen Ranch. In 2005, various owners of the ranch (“McAllen”) sued Forest Oil alleging contamination due to environmental damage from improper hazardous waste disposal techniques. McAllen asserted: tort claims, including negligence, gross negligence, trespass, nuisance, and fraud; damage to real property; and claims of breach of contract founded on a Surface Agreement. The case proceeded to arbitration, where the arbitration panel found in favor of McAllen. The trial court confirmed the award. While the matter was pending, McAllen had requested that the Texas Railroad Commission (“TRC”) investigate. The TRC placed Forest Oil in its cleanup program, and the TRC had not yet made a final determination on remediation. Forest Oil argued that the award was improper because it interfered with the TRC’s exclusive or primary jurisdiction over the dispute.

The court recognized that “primary jurisdiction is prudential whereas exclusive jurisdiction is jurisdictional.” Therefore, if the TRC had exclusive jurisdiction over the matter, the arbitration panel would have lacked subject-matter jurisdiction to make the award, and the trial court would have lacked jurisdiction to confirm the award.

To determine if the TRC had exclusive jurisdiction over the dispute, the court looked to whether the legislature “enacted express statutory language indicating that the agency has exclusive jurisdiction, or, if not, whether a ‘pervasive regulatory scheme’ nonetheless reflects legislative intent that an agency have the sole power to make the initial determination in the dispute.”

The court determined that the TRC did not have exclusive jurisdiction. While the legislature authorized the TRC to develop a pervasive regulatory scheme to oversee environmental issues incident to oil and gas production in Texas, the court is “mindful that, because ‘[a]brogating common-law claims is disfavored’ in light of open courts implications, [the Court] is not to construe a statute creating an administrative remedy to deprive a person of an established common-law remedy unless the statue ‘clearly or plainly’ reflects the legislature’s intent to supplant the common-law remedy with the statutory one.”

Forrest Oil was unable to cite any statutes that indicated the legislature’s intent to abrogate or supplant a landowner’s right to obtain common-law relief for injuries caused to his property by environmental contamination, or other wrongs that arise out of the common law, such as contract violations or property damage.

Primary jurisdiction over a dispute is a judicially-created doctrine that operates to allocate power between courts and agencies when both have authority to make an initial determination. Primary jurisdiction doctrine grants the agency primary jurisdiction when:

(1) an agency is typically staffed with experts trained in handling the complex problems in the agency’s purview; and (2) great benefit is derived from an agency’s uniformly interpreting laws, rules, and regulations, whereas courts and juries may reach different results under similar fact situations.

Forrest Oil alleged that the TRC’s ongoing investigation of the environmental contamination, and Forest Oil’s voluntary participation in the TRC’s cleanup program, supported the TRC’s primary jurisdiction over the dispute.

The court disagreed and held that McAllen’s causes of action in the arbitration did not derive from Forest Oil’s non-compliance with Railroad Commission rules and regulations. “Rather, the McAllens pursued common-law claims and declaratory relief, which are not dependent on the standards of regulatory compliance.” Therefore, the common-law complaints do not require TRC employee expertise or specialized regulatory or administrative interpretation. The fact that the TRC has primary jurisdiction over a part of a dispute does not oust an arbitration panel or a court from making underlying factual determinations.

This significance of the case is the holding that the TRC does not have exclusive or primary jurisdiction over a dispute involving environmental claims, if the underlying common-law causes of action are non-regulatory, such as tort claims, damage to real property, and breach of contract.