CHAPTER 16 LESSONS LEARNED: RISE MANAGEMENT STRATEGIES AS PROJECTS GROW, MATURE, AND CLOSE

• Jurisdiction: United States

REGULATION AND DEVELOPMENT OF COALBED METHANE
(Nov 2002)
CHAPTER 16
LESSONS LEARNED: RISE MANAGEMENT STRATEGIES AS PROJECTS GROW, MATURE, AND CLOSE
Perry L. Glantz
Holland & Hart LLP
Greenwood Village, Colorado
Anthony W. Gorody, Ph.D., CPG-9798
Universal Geoscience Consulting, Inc.
Houston, Texas
Peter M. Mueller
Littleton, Colorado

INTRODUCTION

Coalbed methane (CBM), no longer an emergent resource, is now maturing as a significant source of this nation's burgeoning demand for natural gas. The current op crating environment for CBM development has evolved in spite of unprecedented environmental controversy. Such controversy has been atypical of that experienced in developing conventional gas resources. Environmental tort litigation has pursued CBM development in every producing basin, has forced all major operators to address claims with crisis management practices, and has substantially altered and complicated the regulatory requirements for environmental compliance.

Much of the controversy surrounding CBM development practices could have been either minimized or avoided by tailoring established risk, environmental, and quality assurance management practices to this new business opportunity. The vast amount of useful information collected in response to litigation and new regulations during the past two decades is now sufficient to provide the CBM industry with a blueprint for managing risk. In a nutshell, we have learned that the costs needed to plan and implement a reasonable environmental risk assessment and management system is a fraction of the cost needed to defend against litigation. We have also learned that although the majority of litigious environmental claims against the industry were unsubstantiated, operators repeatedly found themselves defenseless and unprepared to confront claims in the absence of environmental baseline data. Operating companies caught up in the current frenzy to acquire and develop CBM resources need to realize that both their stakeholders and the general public need to be better informed about real development risks. Such risks can only be quantified if formally addressed. Risk assessment and environmental management practices a re a cost of doing business that should be included in economic forecasts.

In order to assist in the defense, or prevention, of these types of litigation, the following will discuss the common law legal theories that are typical in these types of litigation and the key issues to be aware of with respect to each. Further, we will discuss the importance and the methodology for gathering baseline information to assist in the defense of this type of litigation.

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I. COMMON LAW THEORIES OF LIABILITY¹

Each litigation will take on its own personality and will evolve on its own path. This will influence the claims and defenses that come to the forefront. That notwithstanding, there are several common law claims for relief that are typically pled in an environmental litigation involving coalbed methane production and the alleged peripheral impacts. The following is intended to provide a basic source for the fundamental elements of each theory as well as thoughts and strategies for the defense of each claim.

A. Strict Liability

Strict liability is applied in situations in which the activity at issue is so inherently fraught with risk that, should the activity result in damage to another person or property, the individual or entity engaged in the activity is liable for such damage without any further showing of fault or malfeasance. The courts in Colorado, New Mexico and Wyoming are all guided by the Restatement (Second) of Tortsin the application of the theory of strict liability.² Under the Restatement,the following factors are to be considered prior to applying the theory of strict liability:

a. Existence of a high degree of risk of some harm to the person, land or chattels of others;

b. Likelihood that the harm that results from it will be great;

c. Inability to eliminate the risk by the exercise of reasonable care;

d. Extent to which the activity is not a matter of common usage;

e. Inappropriateness of the activity to the place where it is carried on; and

f. Extent to which its value to the community is outweighed by its dangerous attributes.³

Strict Liability has been recognized in Colorado for only two activities: blasting dynamite and impounding water.⁴ However, the Colorado legislature exempted even the impounding of water from the strict liability standard.⁵ It is particularly important in Colorado to distinguish between "ultrahazardous" or "abnormally dangerous" activities and "inherently dangerous" activities. "Ultrahazardous" and "abnormally dangerous" activities are those giving rise to strict liability. An activity that is classified as "inherently dangerous" still requires a showing of negligence but is subject to a higher standard of care than ordinary negligence.⁶ In New Mexico, strict liability has been imposed only for blasting.⁷

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There is no New Mexico precedent for the proposition that drilling for oil and gas constitutes an abnormally dangerous activity. To the contrary, New Mexico courts have uniformly and consistently refused to extend the doctrine even to cases where explosions have occurred.⁸ Moreover, the New Mexico Supreme Court has held that drilling an oil well is not an ultrahazardous activity for purposes of determining a principle's liability for the conduct of an independent contractor.⁹

In deciding whether the doctrine of abnormally dangerous activity under Section 520 applies to natural gas production, the court in Williams v. Amoco Production Co.¹⁰ held that "the drilling and operation of natural gas wells is not an abnormally dangerous activity in relation to the type of harm sustained by appellees.¹¹ According to the court in Williams,"natural gas is not a 'harmful agent' once it is raised to the surface of the earth. Nor does natural gas ruin drinking water, destroy vegetation, or injure livestock. Moreover, natural gas is not a substance which is known to be 'mischievous' if it gets on the property of others."¹²

Wyoming courts distinguish between "absolute liability," by which a defendant is liable for harm without regard to fault, and "strict liability," which imports a liability brought about through negligence.¹³ Absolute liability will not be imposed on a landowner where the injury results from acts of God, war, or the malicious torts of a third person. Absolute liability will be imposed if the landowner is making a non-natural and hazardous use of his land viewed in light of the surroundings and locality. If his use is natural, he will be judged by negligence standards.

Obviously, the first defense of this claim is a legal defense. You must attack this claim in pre-trial dispositive motions and attempt to have it removed from the case on summary judgment. The arguments are straight forward under the restatement elements.

In addition, this claim can be defended by contesting the element of causat on inherent to the claim. It is not enough for the plaintiff to establish that the defendant is engaged in conduct that is considered to be subject to a strict liability or absolute liability standard. They must also establish that the conduct wasthe proximate cause of their harm.

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Causation is one of the keys to the defense of a claim involving coalbed methane production under any theory of liability. Causation is a common theme in these types of cases because if held to their proof on this issue, many plaintiffs do not have the scientific evidence to support their claims. Summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial."¹⁴ "Nor will a mere argument or contention that a triable issue exists suffice or a general allegation without an attempt to show the existence of those factual elements comprising the claim or defense."¹⁵

The Ninth Circuit Court of Appeals considered the scientific evidence of causation in Daubert v. Merrell Dow Pharmaceuticals, Inc.¹⁶ In this opinion the Court considered the adequacy of the evidence regarding causation presented by the plaintiffs to support their allegation that the ingestion of Benedictin during pregnancy caused birth defects.¹⁷ The Ninth Circuit noted that "what plaintiffs must prove is not that Benedictin causes some birth defects, but that it caused theirbirth defects."¹⁸ The testimony offered in that case that it was possible that the Benedictin caused their birth defects was ruled inadequate to present to the jury and the entry of summary judgment in the defendant's favor was affirmed.¹⁹

In Thomas v. FAG Bearings Corp.²⁰ the Court considered the adequacy of the proposed evidence regarding the source and cause of the groundwater contamination at issue in that case. The defendant, FAG Bearings, had filed third-party complaints against a variety of corporate defendants alleging that releases of TCE and TCE related substances from the third-party defendants had contributed to the contamination of the Silver Creek and Saginaw Village CERCLA sites.²¹ The Court noted in this case that "A defendant may have committed a wrong on his own property, and a plaintiff may have been injured on his own property, but unless the defendant's wrong is causally-related to plaintiffs' injury, the defendants should not be held liable."²² The hydrogeologist retained by FAG Bearings could not state that any contaminant had migrated from any third-party defendants' site to the drinking water wells at issue.²³ In deposition testimony the hydrogeologist in the FAG Bearings case could not identify the source of the contamination at the sites at issue in this case and could only state that the third-party defendants were potential contributors to the

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