A LAWYER'S GUIDE TO ETHICAL ISSUES IN ENFORCEMENT PROCEEDINGS

• Jurisdiction: United States

Water Acquisition and Management for Oil & Gas Development
(Apr 2016)
CHAPTER 10B
A LAWYER'S GUIDE TO ETHICAL ISSUES IN ENFORCEMENT PROCEEDINGS
Mary Viviano
General Counsel
Vantage Energy
Englewood, CO
Heidi K. Ruckriegle ¹
Associate
Welborn Sullivan Meck & Tooley, P.C.
Denver, CO

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MARY A. VIVIANO is the General Counsel of Vantage Energy LLC, a privately held exploration company. Previously, she was Vice President and Associate General Counsel of Encana USA for 12 years. Mary also practiced oil & gas, trial advocacy, and public lands law at a number of prominent area law firms, including Welborn Sullivan Meek & Tooley PC and Davis Graham & Stubbs LLP. She holds a BS in business/economics from Regis University and a J.D. with honors from the University of Denver Sturm College of Law. Mary has served on the Rocky Mountain Mineral Law Foundation's Board of Directors, Trustees Council, and as Special Institutes committee chairman, and has authored a number of presentations and papers. Mary was also on the board of Western Energy Alliance, and has presented as a guest lecturer at DU College of Law; Dean's Energy Conference, University of Wyoming College of Law; University of Colorado College of Law (Cross-border Energy Transactions), and Washburn University College of Law, Oil & Gas Symposium. Mary volunteers at the Lakewood Cultural Center Theatre.

HEIDI K. RUCKRIEGLE is an associate at the law firm of Welborn Sullivan Meek & Tooley, P.C., in Denver, CO, and a member of the firm's litigation team. Previously she served as a judicial law clerk for the honorable Justice Gregory J. Hobbs, Jr. of the Colorado Supreme Court. She is a graduate of the University of Denver Sturm College of Law, where she served as the sources editor for the Water Law Review. Her publications include: The Clean Water Act and the Challenge of Agricultural Pollution, Jan Laitos & Heidi Ruckriegle, 37 VT. L. REV. 1033 (2013); The Problem of Housing in Popular Tourist Destinations: Contrasting North American and European Experiences, Jan Laitos & Heidi Ruckriegle, 45 URB. LAW. 849 (Fall 2013); and How To Think Like a Lawyer, The Colorado Lawyer, Vol. 43, No. 2 (2014). A Colorado native, Ms. Ruckriegle is thankful for her Colorado roots and appreciates all the resources the West has to offer. Before law school she worked for Costa Rica Outward Bound leading youth groups through outdoor adventures including rafting, coast-to-coast hikes, scuba diving, and surfing. Her passion is especially strong for winter when she can enjoy her favorite activities: playing hockey and skiing in the backcountry. She is fluent in Spanish and volunteers monthly for Project Safeguard assisting victims and survivors of domestic violence to increase their safety through the civil legal system in the Denver metro area.

I. Background and Hypothetical Release of Flowback Fluids

Historically, states have regulated the technical aspects of oil and gas operations.² However, recent hydraulic fracturing technological advances allowing the development of significant new reserves of shale oil,³ and the regulation of oil and gas production activities using the new technologies, have become hot button issues for both state and federal agencies.⁴ Hydraulic fracturing activities involve the underground pumping of significant quantities of water. When returned to the surface, this "flowback" water is one of the end results of the fracturing process.⁵ After fracturing of the targeted formation is complete, operators must dispose of thousands of gallons of this flowback water through recycling, drilling use, and other means.⁶ The rapid increase in use of the hydraulic fracturing process has led to fear of water

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contamination based on the misplaced assumption that fracturing is dangerous and unregulated.⁷ In reality, companies dispose of and recycle flowback water safely using many different methods consistent with existing state and federal laws.⁸

While the risk of flowback water spills may not be as great as feared, spills can occur and in certain circumstances cause significant damage to surrounding ecosystems and surface waters of the state.⁹ Lawyers for operators and other industry professionals (most notably the operator's environmental, health, and safety teams) should be aware of these issues and the applicable regulatory requirements. Knowledge of the appropriate conduct in response to a spill incident in light of the American Bar Association Model Rules of Professional Conduct ("Model Rules" or "Rules") is also essential for each attorney working on the incident.¹⁰ Water contamination is a significant regulatory¹¹ and reputational¹² concern for the industry, especially where operations intersect with drinking water supplies. The operator's "social license" to operate¹³ (i.e., the

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goodwill of the community, local politicians and activists, and non-governmental organizations to allow the operator to continue to operate without challenge) may be deeply impacted by a single, unfortunate event. Conversely, a compliance crisis may present opportunities to create meaningful improvements within an oil and gas industry organization.¹⁴ This paper investigates several aspects of ethical issues related to the hypothetical incident posed below and the enforcement proceedings that follow. Because other sources have addressed substantive state and federal regulations, this paper will not discuss the applicable spill laws and agencies in detail.¹⁵

The following hypothetical "Incident at Operator Wellpad" sets up a fictitious hydraulic fracturing flowback spill scenario and examines the applicable Model Rules relating to potential resulting ethical issues. Ethical Rules may apply differently to the work of an outside counsel, an in-house counsel, or government counsel. Each designation requires appropriate licensure and continuing legal education requirements, including annual ethics requirements, for maintaining compliance status.¹⁶ Depending on the type of counsel, a lawyer may need to consider slightly different duties to the client, the tribunal, the public and other third parties. Lastly, those attorneys who change jobs or focus (e.g., from a government agency attorney to an in-house attorney or outside attorney, or from one side of a legal issue to the other) have special consideration.¹⁷ Former governmental attorneys would do well to also consider Model Rule 1.11, titled "Special Conflicts of Interest for Former and Current Government Officers and Employees," and the ramifications that changes between the public and private sector can make to their future client representations and advocacy. Rule 1.11 provides that neither the lawyer nor her firm may represent someone in a matter for which the lawyer previously had a governmental role: (i) without the informed, written consent of the governmental entity; or (ii) where, in the process of the prior governmental representation, obtained "confidential

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government information"¹⁸ that the government is prohibited by law or privilege from disclosing to the public.¹⁹

First, Part II of this paper describes ethical issues related to spill management. Part III.A addresses ethical issues for counsel to the operator surrounding the spill and response management in terms of the attorney-client relationship. Next, Part III.B discusses ethical obligations to the agency (in this case the Pennsylvania Department of Environmental Protection) with regulatory authority over the location; and Part III.C will cover other interested parties including: co-working interest owners, contractors, insurance investigators and surface owners. Finally, Part IV highlights a lawyer's best ethical practices in responding to possible negative media coverage following a spill. This constantly changing area is greatly impacted by current social media and political conventions. Applicable ABA Model Rules are interwoven through the paper for practitioners to keep in mind as guidance for professional and ethical conduct in response to a flowback water spill.

Incident at Operator Wellpad²⁰

Operator has drilled and is now completing three 8000' Marcellus gas wells located on a single pad, in Washington County, Pennsylvania. The pad contains two other already producing wells. Operator has two co-venturers in the Wells, each owning a 25% working interest. Operator has contracted with FracCo under a Master Services Agreement to perform the necessary hydraulic fracturing operations to complete the three Wells.

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After completing a fracturing stage on location, the FracCo crew was tasked with moving the equipment to the next well. Due to a miscommunication, a crewmember began disconnecting the main waterline while still under pressure. The line shifted and swung approximately 4 feet away from the employee, spraying him and others with flowback water. Approximately 200 barrels of flowback water spilled or was sprayed outside of the containment area and was inadvertently discharged to the ground surface. The release occurred near the top slope of the wellpad, causing fluids to migrate down a steep grade and over two constructed terraces, into the headwater area of a stream channel. The stream channel connects with a river where there is a public drinking water supply intake.

Two days later, the Pennsylvania Department Environmental Protection ("PADEP") issued the Operator a Notice of Violation ("NOV") for the following:

— Failure to control and dispose of fluids on site in a manner that prevents pollution

— Failure to have secondary containment for hydraulic fracturing activities

— Unpermitted disposal of industrial waste

— Failure to maintain containment during hydraulic fracturing activities causing a discharge of waste, with a potential to pollute the Waters of the Commonwealth

A spill incident triggers various challenges for the Operator and, as discussed in detail below...