In 2014, hydraulic fracturing (“fracking”) remained a hot national topic. Often making headlines, fracking also made its mark in litigation where key battles wound their way through the courts. Reviewing just some legal developments confirms the industry faces unique, sometimes prejudicial, challenges despite continued growth.
For example, the Eighth Circuit’s decision in Hiser v. XTO Energy, 768 F.3d 773, illustrates how extraneous, prejudicial information in the media comes to the jury’s attention and influences litigation. A drilling company appealed an award for damages allegedly caused by vibrations from drilling. During deliberations, the jury asked whether the company was “drilling only or were they also fracking?” One juror stated that earthquakes and other negative impacts “caused” by fracking were also discussed. The jurors largely agreed that a pre-instruction fracking discussion occurred but disagreed about its scope and significance. Finding the trial court’s instruction eliminated the risk of prejudice, the Court of Appeals upheld the verdict.
It is not just negative press causing legal headwinds. High volume natural gas extraction involves a combination of risks and rewards that are ripening into various forms of legal disputes. Most commonly, disputes involve land use, contract and tort-based law and, in 2014, various courts addressed several major issues. Our retrospective aims to provide insight into recent litigation trends and preview remaining, unresolved issues.
Contract Litigation
Numerous contracts are involved in natural gas extraction, such as landowner-energy company leases, contractor-subcontractor agreements and insurance contracts. Unsurprisingly, contract disputes dominated 2014 fracking litigation.
For example, in Warren Drilling v. Equitable Production, 2014 WL 1512699, an indemnification provision in a production company-drilling company contract was applied to an underlying water contamination claim advanced by certain landowners. The court determined the contract’s language wherein the producer’s duty to indemnify was plain and consequently was triggered by the contamination claim against the drilling company. The language at issue provided that the production company “shall assume full responsibility for and shall defend, indemnify, and hold Contractor harmless from and against any loss, damage, expense, claim, fine and penalty, demand, or liability for pollution or contamination.”
The contract’s language was not restricted to “loss” or “liability” but extended the producer’s obligation to indemnify any “claim” or “demand.” Based on expert reports that subsurface chemicals caused contamination, the court determined the producer was contractually required to defend and indemnify the drilling company. The court held the provision’s broad language covering “any claim or demand” evidenced intent to expand Pennsylvania’s triggering rule to include potential liability rather than actual legal liability.
Lease length provisions in older landowner-energy company leases were commonly litigated. In fact, New York, Ohio, and Kansas courts each addressed habendum and/or force majeure provisions. These cases illustrate a potential for myriad disputes and the need for unambiguous contract provisions.
For the full article, refer to page 8 in the Spring 2015 issue. https://www.airroc.org/assets/docs/matters/airroc%20matters.%20vol%2011%20no%201%20spring%202015.pdf
