Topic: State Case Notes

State Casenote

Lyle v. Midway Solar, L.L.C., 08-19-00216-CV, 2020 WL 7769632 (Tex. App.—El Paso Dec. 30, 2020, pet. filed)

Introduction

On December 30, 2020, the Eighth Court of Appeals in, El Paso, Texas, affirmed in part, reversed in part, and remanded a district court’s decision granting Midway Solar, L.L.C. and Gary Drgac’s motions for partial summary judgment.[1] Because the mineral estate owners had no plans to develop the estate, the court ruled that the breach of contract ach and trespass claims were not ripe for review.[2] Additionally, it determined that certain waiver agreements clouded these owners’ title.[3]

Background

The Lyles owned a portion of an undeveloped mineral estate located on a 315-acre land tract (Section 14).[4] Their ownership derived from a 1948 deed, in which the tract’s owners transferred surface ownership to a third party while reserving the mineral interest to themselves.[5] The Lyles had never leased their interest to a developer and had no plans to develop the mineral estate themselves.[6] When the case was heard, Gary Drgac owned Section 14’s surface rights and had no interest in the mineral estate.[7] In October 2015, Drgac entered into a lease with Midway Solar, L.L.C., allowing it to build a solar energy facility on a portion of Section 14 and other adjoining tracts of land in which he had an ownership interest.[8] Midway later obtained waiver agreements from the mineral interest owners in the adjoining tracts.[9] These waivers relinquished the owners’ rights to use the leased areas’ surface for mineral exploration, and while some agreements purported that the owner had mineral rights in Section 14, no owner actually did.[10] Midway subsequently corrected this error and attached a “Disclaimer of Interest” to all of the waivers.[11]

After the solar facility’s construction, the Lyles sued Midway, Drgac, and the surface waiver signers, alleging breach of contract and trespass, and seeking a declaration quieting title in their mineral estate.[12] They sought damages for the trespass and breach of contract claims for the diminished value of their mineral estate as well as an injunction to remove the facility portions that were encroaching on their mineral interest and easement rights.[13] The trial court granted Midway and Drgac’s partial summary judgment motions as to the quiet title, breach of contract, and trespass claims.[14] The Lyles appealed.

The Trespass and Breach of Contract Claims

The court’s analysis started with the question of whether the accommodation doctrine applied.[15] The court explained that the accommodation doctrine was meant to balance mineral estate owners’ and surface estate owners’ rights when the estates have been severed by conveyance.[16] Quoting the Texas Supreme Court, it stated that the doctrine “holds that the ‘mineral and surface estates must exercise their respective rights with due regard for the other’s,’ and has in general provided a ‘sound and workable basis’ for resolving conflicts between ownership interests.”[17] However, the court also made clear that because Texas public policy favors freedom of contract, the accommodation doctrine will not apply to cases in which the express deed or contract terms determines the parties’ rights.[18] Taking both the interests of balancing respective owners’ rights and freedom of contract into account, the court articulated that “when the parties’ deed or contract is silent or unclear on the parties’ respective rights, or when there is substantial disagreement regarding the parties’ intent in the terms used in a deed, the accommodation doctrine will be applied.”[19]

The Lyles argued that the accommodation doctrine should not apply, pointing to a deed provision they claimed expressly described the parties’ rights.[20] The provision provided that “[g]rantors further reserve unto themselves . . . the right to such use of the surface estate . . . as may be usual, necessary or convenient in the use and enjoyment of the oil, gas, and general mineral estate . . . .”[21] Conceding that courts have found the terms “necessary” and “convenient” too imprecise to prevent the accommodation doctrine’s application, the Lyles argued that the word “usual” expressed the grantor’s intent to reserve the right to use vertical drilling—the usual drilling method at the time the deed was signed.[22] The court rejected this argument. First, it pointed out that the deed did not use the term “usual” in the specific context of drilling methods. Second, it noted that the deed did not make clear whether the term was intended to apply to the methods of extracting minerals at the time it was signed (1948) as those methods might evolve over time.[23] Because of this, the court reasoned that there was “room for substantial disagreement as to what the grantors meant in using that term.”[24]

After determining the accommodation doctrine applied, the court considered what it deemed to be the centerpiece of the dispute: the question of whether the Lyles must have been currently using or planning to use the surface of their estate for mineral development in order for their claim to be ripe for review.[25] The Lyle’s argued that because they had already suffered damages as a result of Midway’s solar facility construction—namely, a decrease in the mineral estate’s value—their claims were ripe for review.[26] In response, Midway claimed their facility’s interference with the mineral estate was only potential, and argued that until there is actual interference, the Lyles could not unilaterally dictate the surface’s use.[27]

The court ultimately decides that the question of whether Midway must accommodate the Lyles’ potential property use before they actually seek to use it is not directly addressed by prior case law.[28] Instead, the court suggests that “the answer to that question lies in a proposition of logic, as much as one of law.”[29] As the court formulated it, the Lyles had the surface-use right, but only as an adjunct to their mineral estate.[30] If they exercise this right to develop the minerals, then Midway must yield to the extent required by the accommodation doctrine.[31] If this right is not exercised, then there is nothing for Midway to accommodate.[32] Put more succinctly, “until the Lyles seek to develop their minerals, Midway owes no duty to the Lyles respecting the surface usage.”[33] The court implied that any other result would lead to damages that were too speculative, as the damages calculation based on a diminution of the mineral estate’s value could vary significantly depending on when the Lyles attempted to develop or market the estate.[34] While the court conceded that such a calculation may become necessary once the Lyles attempt to develop the estate, it stressed that “[t]here is simply no logic in allowing trespass damages today for a mineral estate that may never be developed.”[35]

Quiet Title Claims

The Lyles also argued that the surface waiver agreements Midway obtained from the adjacent-land-tracts mineral owners created a cloud on their title. They claimed that because the agreements purported to relinquish the right to use Section 14’s surface for mineral developments, they implied that they held such rights.[36] The Lyles thus sought a judgment declaring the waivers invalid and void.[37] In response, Midway argued that the waivers did not create a cloud on the Lyle’s title, and even if they did, Midway removed the cloud by correcting some of the waivers and adding a Disclaimer of Interest to all.[38]

In rendering its judgment, the court split the waiver agreements into three categories. In the first, the mineral owners stated that they owned a mineral interest in certain lands described by Midway’s leases; these leases covered Section 14.[39] Because the owners claimed an interest in Section 14 that they did not have—the invalidity of which could only be discerned by extraneous documents’ use—the court ruled that the agreements cast a cloud on the Lyles’ title.[40]

The second category consisted of agreements that stated the mineral owners “had interests under some portion of or all of” the lands described in the Midway leases.[41] Because an exhibit attached to the agreements expressly stated that the mineral owners had interests only in lands not including Section 14, the court ruled that these waivers did not constitute a cloud on the Lyles’ title.[42]

The third set of waivers was comprised of agreements essentially the same as those in the second category, except no exhibit clarifying the owners’ interests was attached.[43] Though Midway eventually altered these agreements by crossing out references to Section 14, the court found that these agreements still cloud the Lyles’ title because none of these alterations were done in accordance with the Property Code.[44]

According to the court, Midway’s filing of the Disclaimer of Interest did not prevent any of the agreements from clouding the Lyles’ title.[45] The Disclaimer only stated that the agreements did not grant Midway any mineral-estate-development rights under Section 14 because it was the mineral owners who purported to claim an interest in Section 14 rather than Midway.[46] The court concluded that the Disclaimer of Interest did not correct the problem.[47]

Conclusion

The appeals court concluded that the trial court did not err in granting summary judgment on the trespass and breach of contract claims, but that its dismissal should have been made without prejudice.[48] Additionally, the court determined that the trial court erred in granting summary judgment to Midway and Drgac on the Lyles’ claim for quiet title as it pertained to certain waiver agreements but did not err in granting the same as it pertained to others.[49]

Stacie M. Dowell is associate counsel for the Trinity River Authority of Texas and works on a wide variety of legal issues spanning contract, employment, business, property, and water law.

Samuel G. Dreggors is a third-year student at The University of Texas School of Law and Staff Editor of the Texas Environmental Law Journal.

By Stacie M. Dowell and Thomas Kagerer

State Casenote

State of Texas v. ITC

Introduction

The State of Texas, acting on behalf of the Texas Commission on Environmental Quality (TCEQ), recently brought suit against International Terminals Company, LLC (ITC) for violations of the Texas Clean Air Act, the Texas Water Code, the Texas Solid Waste Disposal Act, and TCEQ rules implementing those statutes.[1] These claims arise from chemical fires that occurred at ITC’s plant in Deer Park, Texas in March 2019.[2] The case is currently pending trial in the 261st District Court of Texas.[3] The decision to sue ITC immediately after the chemical fires occurred is notable because the state has not pursued environmental claims as aggressively in the past.[4] 

Background

ITC owns and operates an independent storage facility for various petrochemical and chemical companies. According to ITC, one of their storage tanks caught fire on March 17, 2019 after a pipe began leaking naphtha, a flammable chemical distilled from petroleum.[5] This fire spread to several other tanks, and by March 19, 2019, ten of ITC’s tanks storing “naphtha and xylene (fuels used in gasoline and plastics), toluene (a volatile liquid used to make nail polish remover and paint thinner), pyrolysis gas, and blended oils” were ablaze.[6]

These fires resulted in “elevated levels of VOCs [Volatile Organic Compounds]” and the “release of several air contaminants including, but not limited to, PM_2.5, PM₁₀, benzene, NOx, toluene, and xylene.”[7] The air contaminants released by fires resulted in several school closures and two “shelter-in-place” orders, which required residents of Deer County and the surrounding areas to stay inside and avoid hazardous air quality in the area.[8] 

After the fires were contained, a “secondary containment area at the Site—that collected a mixture of foam, firefighting water, and petrochemicals, including, but not limited to, toluene, benzene, xylene, and naphthalene—collapsed and resulted in a release of wastewater from the Site.”[9] The wastewater was released into a drainage ditch that feeds into Tucker Bayou and the Houston Ship Channel.[10]

Claims

The State of Texas alleges that the release of these air contaminants, water pollutants, and solid wastes violates TCEQ permits and rules. The State of Texas is seeking civil penalties for: (1) “Unauthorized Air Pollution at the Site,” (2) “Unauthorized Outdoor Burning at the Site,” (3) “Nuisance,” (4) “Unauthorized Visible Emissions,” (5) “Unauthorized Discharge of Wastewater,” and (6) “Unauthorized Discharge of Industrial Solid Waste and Hazardous Waste.”[11] 

First, regarding the cause of action for unauthorized air pollution at the Site, the State of Texas alleges that “ITC caused, suffered, allowed, or permitted the emission of air contaminants from the Site in violation of Texas Health and Safety Code Section 382.085(a) and (b), and Texas Water Code section 7.101 each day from March 17, 2019, until at least March 22, 2019.”[12] These provisions restrict the emission of air contaminants to what the TCEQ authorizes or permits. The chemical fire caused levels of air contaminant emissions that exceeded ITC’s authorized levels.[13] 

Second, regarding the cause of action for unauthorized outdoor burning at the Site, the State of Texas alleges that “ITC caused, suffered, allowed, or permitted outdoor burning at the Site in violation of  Title 30 Texas Administrative Code Section 111.201 and Texas Water Code section 7.101 each day from March 17, 2019 until March 20, 2019, and on March 22, 2019.”[14] Similar to the first claim, ITC allegedly exceeded its permissible limits for outdoor burning during the chemical fires.[15] 

Third, the State of Texas has brought a nuisance claim against ITC. Texas alleges that the emissions from the fires created a nuisance when they caused “fatigue, dizziness, and headaches from short-term exposure” in people near the plant both when the two “shelter-in-place” orders were issued on March 17 and March 21, 2019 and when various public and private schools were forced to close in the area.[16] The State of Texas claims that this nuisance was created “in violation of  Title 30 Texas Administrative Code Section 101.4 and Texas Water Code Section 7.101.”[17]

Fourth, the State of Texas alleges that there were “Unauthorized Visible Emissions” as a result of the fires.[18] The State of Texas claims that a “large, dark emissions plume” was visible beyond the Site without a TCEQ permit.[19] As a result, Texas alleges that ITC “caused, suffered, allowed, or permitted unauthorized visible emissions at the Site in violation of Title 30 Texas Administrative Code Section 111.111 and Texas Water Code Section 7.101.”[20]

Fifth, the State of Texas alleges that ITC violated an important section of the Texas Water Code.

[U]nder section 26.121 (a) of the Texas Water Code, except as authorized by TCEQ, no person may: (1) discharge municipal, recreational, agricultural, or industrial waste into or adjacent to any water in the State: (2) discharge other waste into or adjacent to any water in the state which may cause pollution of the water; or (3) “commit any other act or engage in any other activity which in itself or in conjunction with any other discharge or activity causes, continues to cause, or will cause pollution of any of the water in the state.”[21] 

The State of Texas alleges that ITC violated this provision when it discharged wastewater into a drainage ditch that feeds into Tucker Bayou and the Houston Ship Channel without a TCEQ permit. Therefore, the State of Texas alleges that “ITC has caused, suffered, allowed, or permitted the discharge of wastewater from the Site in the waters of the state in violation of Texas Water Code Sections 26.121 and 7.101.”[22]

Sixth, and related to the discharge of wastewater, the State of Texas alleges that ITC “caused, suffered, allowed, or permitted the continual disposal of hazardous waste from the Site in a manner that caused: (1) the discharge or imminent threat of discharge of industrial solid waste into or adjacent to the waters in the state; (2) the creation and maintenance of a nuisance; or (3) the endangerment of the public health and welfare, in violation of Title 30 Texas Administrative Code section 335.4 and Texas Water Code Section 7.101.”[23] The hazardous waste entered into the “Waters of Texas” when the on-site storage pond collapsed and discharged into Tucker Bayou.[24]

Finally, all of these causes of action seek damages under the same provision, Texas Water Code Section 7.102.[25] Section 7.102 provides that “the State is entitled to civil penalties against ITC within the statutory range of not less than $50 nor greater than $25,000 for each day of each violation alleged.”[26] Additionally, the State of Texas seeks injunctive relief against ITC for continuing violations of the Texas Clean Air Act, the Texas Water Code, the Texas Solid Waste Disposal Act, and regulations promulgated by TCEQ.[27] Furthermore, the State seeks “reasonable attorney’s fees, investigative costs, and court costs incurred in relation to this proceeding.”[28] 

ITC has entered a “general denial to every allegation” and “demands that the plaintiff prove each allegation as applicable by law.”[29] Additionally, ITC has raised defenses “under the Eighth Amendment to the United States Constitution and Section 13. Article I of the Texas Constitution” as well as “the Fourteenth Amendment to the United States Constitution and by Section 19. Article I of the Texas Constitution,” stating that multiple claims for the same underlying event would impose excessive fines and violate due process protections.[30] The case is ongoing and awaiting trial in the 261st District Court of Texas.[31]

Enforcement Shift

Aside from being a disaster for both the State of Texas and ITC, this lawsuit is illustrative of a potential shift in enforcement against environmental violations. Emission events like this typically result in favorable settlements or non-enforcement of environmental statutes. For example, a report from Environment Texas concluded that from 2011 to 2017, less than three percent of emission events result in penalties.[32] Therefore, the decision to bring a suit against ITC so soon after the incident may be a signal that Texas is changing its enforcement procedures for environmental regulations.[33] 

The State’s petition was filed on March 26, 2019, just days after the fires at the ITC plant had been extinguished.[34] This is markedly faster than several similar incidents in the past. For example, after a chemical explosion at a fertilizer plant in West, Texas in 2013, the State of Texas and the TCEQ never sued at all.[35] Instead, individual cities, counties, and victims of the incident brought the bulk of the lawsuits.[36] The State has been criticized for other instances of lax enforcement, including: waiting over a year to sue after a 2005 explosion at a British Petroleum oil refinery,[37] requesting that counties refrain from suing Volkswagen after it cheated on the EPA emissions tests,[38] and waiting roughly three years to sue BP after the notorious 2010 Deepwater Horizon incident.[39] The promptness of the ITC suit is a sharp contrast from previous enforcement and may be a harbinger of stricter enforcement.[40] However, some critics have described the enforcement against ITC as selective-enforcement against a lesser-known company rather than as a shift in policy.[41] 

These concerns are informed by Ken Paxton’s record on environmental issues. Paxton has brought several suits on behalf of Texas against the EPA, such as opposing the Obama-era Clean Power Plan, challenging several ozone and sulfur oxide nonattainment determinations, and suing the EPA over regulations that aimed to cut methane emissions.[42] However, these are challenges against federal action rather than enforcement of state environmental statutes, and Mr. Paxton’s opinion on enforcement of Texas Environmental Law could still be in favor of greater enforcement. 

Regardless, it is important to note the promptness of the lawsuit against ITC and monitor how this could reflect a change in environmental enforcement across the state. Notably, several other lawsuits have been brought by the State of Texas against polluters for similar incidents,[43] indicating that the ITC case may not be an outlier, and undercutting the criticism that the ITC suit is merely selective enforcement against a lesser-known company. Looking forward, this lawsuit and the legal claims advanced could provide a blueprint for how Texas and the TCEQ will operate in future environmental suits against polluters involved in environmental disasters. 

Stacie M. Dowell is associate counsel for the Trinity River Authority of Texas and works on a wide variety of legal issues spanning contract, employment, business, property, and water law.

Thomas Kagerer is a second-year student at The University of Texas School of Law and a staff member of the Texas Environmental Law Journal.