Posted on June 20, 2016 by Molly Cagle
During this long and nasty election season, I am relieved that the Texas Supreme Court is embracing a little Tim McGraw (Hold the door, say please, say thank you / Don’t steal, don’t cheat, and don’t lie/ I know you got mountains to climb but always stay humble and kind)(“Humble and Kind”). Yes, in what the Respondents argued would be a “momentous” change in Texas groundwater law, the Texas Supreme Court announced in Coyote Lake Ranch, LLC v City of Lubbock, No. 14-0572 (Tex. May 27, 2016) that the age-old “accommodation doctrine” which has served the State so well in resolving disputes between landowners and oil and gas lessees, would apply between a landowner and the owner of the severed interest in the groundwater.
In addition to a great style (rest assured it will be known as the Coyote Ranch holding), the decision should remind you a little of reading Robert Fulghum’s All I Really Need to Know I Learned in Kindergarten.
For those of you not steeped in Texas oil and gas law, the accommodation doctrine essentially recognizes that, absent a specific agreement to the contrary, an oil and gas lessee has an implied right to use the land as reasonably necessary to produce and remove the minerals but must exercise that right with due regard for the landowner’s right. Professor William Huie, Sylvan Lang Professor of Law Emeritus at The University of Texas, called it the “not in my living room” rule, and explained it in pretty simple terms something like this – if the oil and gas lessee can cost-effectively drill for and produce oil or gas without putting the wellhead in the landowner’s living room, he must not insist that the drilling rig be set up in the parlor. It’s not neighborly. And for those not steeped in Texas groundwater law, the “rule of capture” applies, generally allowing each landowner to pump whatever he or she can without waste, knowing that liability may arise if the pumping physically causes a neighbor’s land to subside. That’s also not neighborly.
The Coyote Ranch facts are a bit nuanced, but can be summed up as follows. In the midst of the 1950’s drought of record in Texas, the City of Lubbock bought the Ranch’s groundwater rights. The Ranch reserved groundwater for domestic use, ranching operations, oil and gas production and limited irrigation. The Ranch was limited to one or two wells in each of 16 specific areas for irrigation. During the first 60 years of the agreement, Lubbock installed a total of seven wells on the Ranch. In 2012, Lubbock announced it intended to dramatically ramp up its water production from the Ranch. Over the Ranch’s objection, the City mowed through vast swaths of native grass to drill sites etc., and otherwise acted in total disregard of the Ranch’s operations and habitat preservation. It wasn’t the living room, exactly, but the City plowed across sandy portions of the Ranch contributing to extensive wind erosion. The trial court enjoined the City with an injunction so broad that it operated as a de facto moratorium on any surface activity by the City.
On appeal, the City claimed its deed was broad enough that it could drill whenever and wherever and common law didn’t protect the landowners from the City’s boorish behavior. The Court of Appeals adopted the City’s view of the deed and concluded that the Ranch could not prevail unless the accommodation doctrine applied. Finding no prior authority to support application of the accommodation doctrine to a groundwater dispute, the Court of Appeals reversed the trial court and lifted the injunction.
The Texas Supreme Court granted the Ranch’s petition, quickly concluded that the deed provisions did not adequately address the dispute, and marched right into unchartered waters—whether the accommodation doctrine should apply to a dispute between the holder of a severed groundwater estate and the surface estate owner. The City had to know it was in trouble when the Court characterized its position as follows:
[The City claims it] has an all but absolute right to use the surface heedless of avoidable injury…[and] that it can drill wherever it chooses, even if it could drill in places less damaging to the surface and still access all the water.
That’s just NOT neighborly. Thus, to no one’s surprise who actually graduated from kindergarten, the Supreme Court concluded that the accommodation doctrine would indeed apply to resolve conflicts between the severed groundwater estate and the surface estate when the conflict was not governed by the express terms of the parties’ agreement. It’s a “let’s-all-just-try-to-get-along” policy that has worked successfully for nearly 50 years in oil and gas disputes, it is well-understood and, as the Supreme Court noted, it is not often disputed. The parties will now return to the trial court to see if they actually learned what they should have in kindergarten. It’s amazing that they had to go all the way to the Texas Supreme Court to be reminded how neighbors should act.