Saltwater disposal wells rarely fail, but when they do, a complex web of legal issues can arise, such as potential regulatory matters, and potential claims for surface or subsurface damages, among other related operational concerns. A recent SWD failure case dives into critical questions of proximate cause and explores whether the reasonable prudent operator defense may shield against surface damage claims.
In this case, Lee v. Memorial Prod. Operating LLC, No. 03-22-00063-CV, 2024 WL 847222 (Tex.App—Austin Feb. 29, 2024, no pet.), surface owners (members of the Lee family) brought suit against multiple prior operators for damages to the Lees’ cattle operation and enjoyment of their Cedar Mountain Ranch in Coke County, arising from the failure of a saltwater disposal well that caused a large volume of saltwater to flow onto their property. A jury found in favor of the operators and the trial court rendered a take-nothing judgment; this appeal followed.
The well at issue (the SWD5) was originally drilled for oil and gas production in 1957, but it was converted into a saltwater-disposal well around 2007. Ownership and operation of the SWD5 changed hands several times in the following years. In September of 2014, Memorial injected volumes exceeding the permitted limits on several days, and on September 25, 2014 the wellbore failed causing a massive quantity of fluid to gush out of the ground causing significant alleged damages.
The Lees were unhappy with the remediation efforts and brought suit.
Investigation revealed that there was severe degradation of the well’s tubing and casing. The SWD5 had a mechanical packer installed at 4,492 feet, which was within 100 feet above the injection zone, as required by the Railroad Commission to prevent injected water from flowing up the wellbore. However, investigation revealed that there was also a second, undisclosed EE Packer was discovered at just 260 feet below the surface. The EE packer was not designed to function as a mechanical packer, and the Lees contended that it violated multiple regulatory requirements including reporting requirements, rules allowing only one packer and rules prohibiting the placement of a packer higher than 150 feet below the base of useable quality water.
The Lees asserted numerous causes of action, including negligence, nuisance, trespass, and a claim under Tex. Nat. Res. Code § 85.321 for alleged violation of several Railroad Commission rules and terms of the related disposal permit. The appeal primarily focused on procedural issues. However, some of the substantive oil and gas arguments and issues in this case may be notable as a case study for oil and gas practitioners.
For instance, the prior operators obtained leave to file an amended answer after the scheduling-order deadline which asserted the reasonably-prudent-operator defense expressly provided under Tex. Nat. Res. Code § 85.321. The Lees claimed this was an abuse of discretion arguing the defense was “legally futile” because the Lees interpreted the text of § 85.321 as limiting this defense to claims for “waste” to mineral interests, whereas the Lees were only claiming conventional surface damages and personal losses. The appellate court rejected each of these points of error on procedural grounds, reasoning that the “legally futile” analysis was not applicable since this was not a jurisdictional pleading issue, and holding that the proper analysis was whether the amendment would cause surprise or prejudice which the court reasoned could not be shown here because the asserted defense was part of the same statute under which the Lees brought their claim.
The Lees also claimed the trial court erred in dismissing their claims for breach of an oil and gas lease (in the form of a partial summary judgment and a directed verdict. In the appellate court’s view, although the Lees produced evidence that they owned the surface estate, they failed to produce evidence that they were the successor owners of the mineral estate and thus successor lessors under the lease. As a result, in the court’s view, this also rendered it immaterial whether the Lees proved that the defendants were successor lessees under the lease. Moreover, although the Lees presented evidenceof a surface use agreement between the Lees and one of the defendants, in the appellate court’s view that was immaterial because it was not the contract the Lees contend was breached.
The Lees also argued that the trial court made several errors relating to the jury charge, but the court held that the Lees failed to preserve these issues for appeal. Also, while the Lees contended that the charge should have included an instruction stating that compliance with Texas Railroad Commission cleanup standards is not a defense to civil liability, in the appellate court’s view that was not reversible error because the related charge pertained to apportionment of damages caused by the breakout and nothing mentioned compliance with remediation standards.
Also, the court found no error in the trial court’s refusal to include a trespass charge, reasoning that there was no evidence that the defendants intentionally operated the well with the EE Packer. Moreover, in the court’s view, any potential error was harmless, reasoning that the reasonable prudence of the defendants was part of the trial court’s definition of negligence and therefore the jury would not have found trespass either.
Finally, the Lees challenged the legal and factual sufficiency of the evidence supporting the jury’s finding of no negligence. In the court’s view, even assuming the regulatory violations constituted negligence per se, the Lees failed to prove that such negligence proximately caused their damages. The operators denied knowledge of the EE Packer’s installation, there was conflicting evidence about who installed it and when, and it was up to the jury to weight the evidence.
Moreover, the court reasoned that the jury could have reasonably concluded that the EE Packer was the sole cause of the breakout but that the Lees failed to prove that any of the defendants installed it.
