U.S. District Court in Pennsylvania Dismisses Majority of Water Well Contamination Claims Against Oil Drilling Company

Posted in: United States Water News, Water Contamination
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Article courtesy of Arvind Walmiki | February 12, 2015 | Jdsupra Business Advisor | Shared as educational material

Earlier this month, U.S. District Judge John E. Jones III in the Middle District of Pennsylvania completely adopted the “extremely thorough, well-reasoned” recommendations of a U.S. Magistrate Judge and dismissed almost all of the plaintiff’s claims arising from alleged water well contamination related to the defendants’ nearby drilling operations.  Ely et al. v. Cabot Oil & Gas Corp., et al., Dkt. No. 3:09-cv-2284 (M.D. Pa. Jan. 12, 2015) (J. Jones III).

In November 2009, 44 plaintiffs collectively filed suit against Cabot Oil & Gas Corp. (“Cabot”) and GasSearch Drilling Services Corp., (“GDS”) alleging that the defendants’ natural gas drilling operations in Susquehanna County, Pennsylvania caused them injuries and property damage.  Ely et al. v. Cabot Oil & Gas Corp., et al., Dkt. No. 3:09-cv-2284 (M.D. Pa.) (J. Carlson).  Many plaintiffs settled, leaving only 10 plaintiffs in the case by April 2014, including Nolen Scott Ely and his family.  Ely claims that he and his family suffered numerous injuries and damages after Cabot allegedly fraudulently induced him to sign an oil and gas lease on his 8.28-acre parcel of land in Susquehanna County in 2007.  Though Cabot never actually drilled on Ely’s land, Ely claims that his drinking water well was contaminated with large quantities of methane, mud and other drilling materials, complicating construction of his family’s ”dream house” on the property.  Pennsylvania’s Department of Environmental Protection (“PA DEP”) directed the well to be closed in January 2009 due to its contamination.  For the next three years, Cabot and Ely worked together to supply the home with potable drinking water.  After 2012, Cabot stopped providing water to Ely but offered to connect a water treatment system to Ely’s well, though Ely refused.  Ely never spent any money to repair or remediate his property, nor did the Elys incur any costs for health assessments or health effects studies.

The defendants sought summary judgment on the Ely family’s claims for breach of contract and lost royalties on the oil and gas lease, fraudulent inducement, negligence and negligence per se, medical monitoring and violations of the Pennsylvania Hazardous Sites Cleanup Act (“HSCA”).  In April 2014, Chief U.S. Magistrate Judge Martin C. Carlson recommended that the defendants’ motion be granted with respect to all of Ely’s claims except negligence and private nuisance.  Last week, the district court followed the Magistrate Judge’s recommendations and dismissed most of Ely’s claims.

The court examined each of the Elys’ claims in turn, determining that the record contained sufficient evidence to allow the Elys to proceed on their claims of negligence and private nuisance, and granting summary judgment as to all other claims.  The court also dismissed all claims against defendant GDS, who was not a party to the lease between Cabot and the Elys.

First, the court granted summary judgment as to the Elys’ breach of contract claims against Cabot as the claims were wholly lacking factual and legal support.  The oil and gas lease between the parties provided that Cabot would test the Elys’ water supply both prior to, and following, any drilling on the land.  However, as Cabot never conducted any drilling operations on the Elys’ land, Cabot’s obligations to test or restore the water supply on the property were never triggered.  Cabot had no obligation, therefore, to return the water supply to “pre-drilling conditions” and did not breach the lease.  The Elys’ claims that Cabot breached the royalties provision in the oil and gas lease were similarly unsupported by evidence.  Ely admitted that he received payments from Cabot, but complained they were too infrequent and irregular.  The lease language, however, only required payment of a certain percentage of royalties and was silent as to the timing, amount or regularity of those payments, thus the court held that Cabot did not breach the lease with regard to royalties.  Finally, the court disposed of the Elys’ claims that Cabot breached the lease by failing to keep the property safe and undisturbed, noting the lease language expressly authorizing Cabot to use the property for drilling, transportation, construction and other uses.  Such use, the court noted, is “one of the core purposes of the Lease agreement” and certainly not a breach of the agreement.

Next, the court granted summary judgment as to the Elys’ claims that Cabot fraudulently induced Mr. Ely to enter the oil and gas lease.  The court found that Ely could not meet the “very high standard” of the required elements of a fraudulent misrepresentation claim under Pennsylvania law.  Despite Ely’s claims that Cabot misrepresented the risk of property damage to his land, failed to properly explain various lease terms, convinced him not to have an attorney review the lease, misrepresented the royalty payments and led him to believe that his neighbors had all signed similar agreements, the court noted that Mr. Ely testified that many of these statements were never made and he was unable to present evidence to show that Cabot knowingly made false statements with the intent to induce him to sign the lease.  Even more compelling, the court noted, was the fact that many of the “fraudulent” statements cited by Mr. Ely were, in fact, true — Cabot never drilled on the Ely land.  A party seeking to recover damages for fraudulent inducement must show economic harm caused by the fraud; Mr. Ely was unable to evidence any damages due to Cabot’s alleged fraud, persuading the court to grant summary judgment to Cabot on those claims as well.

Third, the Elys’ HSCA claims failed due to the family’s failure to prove an actual or threatened release on the property, as well as the absence of any response costs incurred.  The court noted that methane and petroleum products are expressly excluded from coverage under HSCA; therefore, the Elys’ claims related to any alleged spills of natural gas or petroleum products plainly fail as a matter of law.  See 35 Pa. Cons. State. Ann. §6020.103 (defining “hazardous substances”).  Moreover, Cabot never conducted any operations on the Elys’ land, and the Elys have not incurred, and will not incur, any response costs to clean up their property, a necessary element to a private right of action under HSCA.

The court also granted summary judgment for Cabot on the Elys’ medical monitoring claims, as the plaintiffs “entirely failed to produce evidence to support these claims.”  The Elys were unable to meet the significant burden of a medical monitoring claim in Pennsylvania, as no physician ever told the family they were at any increased risk of disease, and the plaintiffs were unable to offer any expert testimony to support their claims.

Two portions of the Elys’ case survived Cabot’s motion, as the court permitted the Elys’ negligence and private nuisance claims to proceed to trial, though their negligence per se claim was dismissed because the plaintiffs failed to present any evidence that Cabot violated federal and state environmental statutes.  Though the court, under Federal Rule of Evidence 408, prohibited the Elys’ use of past consent decrees and settlement agreements between Cabot and PA DEP to establish support for their negligence claim, the Elys did offer expert testimony regarding the extent and severity of the pollution of their water supply and presented evidence that the cause of this lasting and severe contamination is Cabot’s drilling operations near the Ely property.  Thus, the court found sufficient evidence in the record to create a triable issue as to whether Cabot breached the standard of care, and sufficient evidence of damages to withstand summary judgment.  Additionally, the Elys properly alleged a serious invasion of the possessory interest in their property for the private nuisance claims to survive; despite the defendants’ arguments to the contrary, the invasion need not be intentional or unreasonable.

Having dispatched with most of the Elys’ claims, the court referred the case back to the magistrate judge to attempt mediation of the remaining claims.


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