Arbitration Award Of More Than $20 Million Against Texas Oil And Gas Company Allowed To Stand
In a case arising out of an oil and gas company’s mineral lease and operations in Hidalgo County, Texas, a group of landowners initiated a suit against the company to recover for environmental damages caused to the property. The plaintiffs alleged that the company deposited hazardous materials on the property that contaminated the soil and ground water, including mercury-contaminated iron sponge wood chips used in the production of natural gas. They also alleged that the company donated oilfield drilling pipe contaminated with naturally occurring radioactive materials for the construction of pens to hold endangered rhinoceroses on a neighboring property, and that one of the landowners’ exposure to this contaminated pipe caused him to develop cancer in his leg that eventually had to be amputated.
The company moved to compel arbitration of all of the claims, which stemmed from alleged environmental liability, and the Supreme Court of Texas agreed in 2008 that the parties’ arbitration clause was enforceable and that the claims required arbitration. The case proceeded to arbitration, where an arbitration award was rendered against the company for $15 million in actual damages to the landowners, $500,000 in actual damages to one individual for personal injury, $500,000 in exemplary damages, and more than $5 million in attorneys’ fees. The trial court confirmed the award and the Court of Appeals of Texas, First Division, affirmed that ruling on July 25.
On appeal, the company argued that the Texas Railroad Commission had exclusive or primary jurisdiction over the dispute, that one of the arbitrators exhibited evident partiality, that the arbitrators exceeded the scope of their authority, and that the damages awarded by the arbitrators resulted from gross mistake or a manifest disregard for the law. The Texas appellate court rejected all of these arguments.
Of note in the court’s rejection of the argument that the Railroad Commission had exclusive or primary jurisdiction over the dispute, the court acknowledged that the Texas Legislature chose the Railroad Commission as the state agency to solely make and enforce environmental regulations related to oilfield operations, but that the Legislature did not intend for the Railroad Commission’s regulatory scheme to abrogate or supplant a landowner’s right to obtain common-law relief for injuries caused to his property by environmental contamination. In other words, unless otherwise stated by law, the court found that a landowner could seek redress for pollution to his property even when the polluter is in regulatory compliance.
