Forest Oil Corporation, Now Known as Sabine Oil & Gas Corporation v. El Rucio Land and Cattle Company, Inc., San Juanito Land Partnership, Ltd., McAllen Trust Partnership, and James Argyle McAllen , 518 S.W.3d 422 ( 2017 )

IN THE SUPREME COURT OF TEXAS
444444444444
NO . 14-0979
444444444444
FOREST OIL CORPORATION, NOW KNOWN AS
SABINE OIL & GAS CORPORATION, PETITIONER,
v.
EL RUCIO LAND AND CATTLE COMPANY, INC.,
SAN JUANITO LAND PARTNERSHIP, LTD.,
MCALLEN TRUST PARTNERSHIP, AND
JAMES ARGYLE MCALLEN, RESPONDENTS
4444444444444444444444444444444444444444444444444444
ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS
4444444444444444444444444444444444444444444444444444
Argued February 8, 2017
CHIEF JUSTICE HECHT delivered the opinion of the Court, in which JUSTICE GREEN , JUSTICE
JOHNSON , JUSTICE WILLETT , JUSTICE GUZMAN , JUSTICE LEHRMANN , JUSTICE BOYD , and JUSTICE
DEVINE joined.
JUSTICE BROWN did not participate in the decision.
The principal question in this case is whether the Railroad Commission (RRC), which
regulates oil and gas operations in Texas, has exclusive or primary jurisdiction over claims for
environmental contamination, thus precluding suits for damages and other judicial relief. We answer
no. We also decide whether the arbitration award in this case should be vacated for the evident
partiality of a neutral arbitrator or because the arbitrators exceeded their powers,1 and whether the
parties agreed to judicial review of the exemplary damages award. Again, we answer no.
Accordingly, we affirm the judgment of the court of appeals.2
I
Through family entities, respondent James A. McAllen controls the 27,000-plus-acre
McAllen Ranch (“the Ranch”) once owned by his great-grandfather, for whom the City of McAllen,
on the Rio Grande River near the southern tip of Texas, is named. Petitioner Forest Oil Corporation
(“Forest”) has produced natural gas on the Ranch for over 30 years. Forest’s leases cover about 1,500
acres, and it maintains a processing plant on 5.75 acres.
In the 1990s, McAllen sued Forest for underpayment of royalties and underproduction of the
lease. The parties resolved their disputes with a “Settlement Agreement” and a “Surface Agreement”.
The latter provided in part:
8. [Forest] will not bring on the Leases any hazardous material . . . . Further
[Forest] agree[s] (1) to remove from the Leases, if, as and when required by
law, any hazardous material placed or released thereon by [Forest], (2) to
perform remedial work where the need therefore arises as a result of and is
caused by [Forest’s] operations or activities on the Leases, and (3) to comply
in all respects with all federal, state and local governmental laws and
regulations governing operations by [Forest] and remedial work on or
associated with the Leases.
9. [Forest] shall not store or dispose of any hazardous materials on the surface
of the Leases. . . .
1
See T EX . C IV . P RAC . & R EM . C O D E § 171.088(a) (“[T]he court shall vacate an award if . . . (2) the rights of
a party were prejudiced by: (A) evident partiality by an arbitrator appointed as a neutral arbitrator; [or] (3) the arbitrators:
(A) exceeded their powers . . . .”).
2
446 S.W .3d 58 (Tex. App.–Houston [1st Dist.] 2014).
2
The Surface Agreement also incorporated an arbitration provision in the Settlement Agreement.
In 2004, McAllen learned from a former Forest employee that Forest had contaminated the
property. Also, McAllen was told, used oilfield tubing Forest had donated to him for construction
of a rhinoceros pen was contaminated with naturally occurring radioactive material (NORM). When
McAllen was diagnosed with sarcoma in his ankle, resulting in the amputation of his right leg below
the knee, he blamed Forest.
McAllen sued Forest for environmental contamination, improper disposal of hazardous
materials on the Ranch, and maliciously donating the contaminated pipe that caused his injury.3
Forest moved to compel arbitration, McAllen objected, and the trial court denied the motion. We
reversed.4 Meanwhile, in 2007, McAllen asked the RRC to investigate contamination of the Ranch
by Forest. The RRC referred Forest to its voluntary Operator Cleanup Program to propose and
implement plans to remediate soil and groundwater conditions affected by its operations on the
Ranch. The RRC has approved portions of Forest’s proposals but has yet to approve Forest’s
proposed final remediation plan.
Arbitration proceeded before a panel of three neutral lawyer-arbitrators. Forest chose
B. Daryl Bristow of Houston, and McAllen chose Donato Ramos of Laredo. When Bristow and
Ramos could not agree on a third arbitrator, Forest asked District Judge Dion Ramos of Houston (no
relation to Donato) to name one, and each side proposed candidates. Judge Ramos chose Clayton
3
McAllen was joined as plaintiff by three entities he controls, also respondents here: El Rucio Land and Cattle
Company, Inc.; San Juanito Land Partnership, Ltd.; and McAllen Trust Partnership. As their positions are the same, we
refer only to McAllen.
4
Forest Oil Corp. v. McAllen, 268 S.W .3d 51, 62 (Tex. 2008).
3
Hoover of Austin, whom McAllen had proposed.5 A divided panel refused Forest’s request to abate
the proceedings pending final rulings by the RRC and awarded McAllen, as owner of the land, $15
million for actual damages, $500,000 for exemplary damages, and some $6.7 million for attorney
fees; the panel also awarded McAllen, individually, $500,000 for personal injury actual damages.
In addition to these awards, the panel declared:
a. [Forest] has a continuing obligation and duty under the Surface Agreement
to locate, remediate, and dispose of all hazardous and non-hazardous
materials from the [Ranch] related to [Forest’s] operations;
b. [Forest] is required to perform remedial work where the need therefore arises,
which shall include the removal of any and all hazardous and non-hazardous
materials when those materials are no longer necessary in the conduct of
[Forest’s] operations on the lease;
c. [Forest] is solely responsible for reimbursing [McAllen] for any future costs
and expenses incurred by [McAllen] in conducting investigations which
result in the identification of additional locations requiring remediation of
hazardous and non-hazardous materials on the [Ranch] resulting from
[Forest’s] operations; and
d. [ Forest] is solely responsible for all future remediation costs and activities
related to pollutants, contaminants, and hazardous and non-hazardous
materials that are known to be present and/or discovered under those lands
covered by the Surface Agreement.
The panel also ordered Forest to provide McAllen a $10 million bond to assure its performance of
these continuing obligations. Arbitrator Bristow issued a 40-page dissent.
Forest moved to vacate the award on several grounds. Forest argued that the RRC had
exclusive or primary jurisdiction over McAllen’s claims, precluding the arbitration. Forest also
5
Unbeknownst to Forest, McAllen, his two lawyers, and their paralegal, none of them Houston residents, each
made $2,500 contributions to newly appointed Judge Ramos’ election campaign— 1/6th of all he raised before the
election. None had previously made a political contribution to a judicial election campaign in Houston.
4
offered evidence that McAllen had earlier objected to using Ramos as a mediator in another case,
apparently to avoid any conflict in Ramos’ serving as an arbitrator in this case. McAllen had not
communicated with Ramos in the other case, and while the opposing party had contacted Ramos’
staff, there was no evidence that Ramos knew of the mediation. Neither McAllen nor Ramos had
disclosed these facts to Forest when Forest named Ramos an impartial arbitrator; Forest argued that
this nondisclosure showed Ramos’ evident partiality and thus required vacatur of the award. Forest
also argued that the damages awards were in manifest disregard of Texas law, and that the parties
had agreed to expanded judicial review of the arbitration award. The trial court vacated the award’s
$10 million bond requirement but otherwise denied Forest’s motion. The court of appeals affirmed.6
We granted Forest’s petition for review.7 We consider first whether the RRC has exclusive
or primary jurisdiction over McAllen’s claims, and then whether the grounds for vacatur Forest has
raised are valid.
II
The RRC has extensive statutory authority to regulate contamination from oil and gas
operations. Forest argues that its jurisdiction over those matters is exclusive or at least primary.
A
“An agency has exclusive jurisdiction when the Legislature gives the agency alone the
authority to make the initial determination in a dispute.”8 As a rule, when an agency has exclusive
6
446 S.W .3d 58, 87 (Tex. App.–Houston [1st Dist.] 2014).
7
60 Tex. Sup. Ct. J. 77 (Dec. 2, 2016).
8
Cash Am. Int’l Inc. v. Bennett, 35 S.W .3d 12, 15 (Tex. 2000).
5
jurisdiction, a party must exhaust all administrative remedies before seeking judicial review of the
agency’s action, and then “only at the time and in the manner designated by statute.”9 Until then, the
trial court lacks subject-matter jurisdiction and must dismiss the claims within the agency’s exclusive
jurisdiction.10
Forest argues that the RRC has exclusive jurisdiction over this dispute, foreclosing
McAllen’s common-law contamination claims, so that the arbitration panel lacked jurisdiction to
enter the award and the trial court the jurisdiction to confirm it. Abrogation of a common-law right,
as we have said, “is disfavored and requires a clear repugnance” between the common-law cause of
action and the statutory remedy.11 A statute’s “express terms or necessary implications” must indicate
clearly the Legislature’s intent to abrogate common-law rights.12 Absent such a clear indication, the
RRC did not have exclusive jurisdiction over the claims at issue.
As a clear indication of such intent, Forest points to Section 26.131(a)(1) of the Texas Water
Code, which states that the RRC “is solely responsible for the control and disposition of waste and
the abatement and prevention of pollution of surface and subsurface water resulting from . . .
activities associated with the exploration, development, and production of oil or gas . . . .”13 But we
have held that “[t]he ‘solely responsible’ language of Section 26.131 was added by the Legislature
9
Id.
10
Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W .3d 212, 221 (Tex. 2002).
11
Cash Am. Int’l Inc., 35 S.W .3d at 16.
12
Id.
13
T EX . W ATER C O D E § 26.131(a)(1).
6
to resolve a jurisdictional dispute between the Railroad Commission and the Water Pollution Control
Board (forerunner to the [Department of Water Resources, now the Texas Commission on
Environmental Quality (TCEQ)]) concerning the regulation of water pollution by the oil and gas
industry.”14 Forest also cites Section 401.415(a) of the Texas Health and Safety Code, which gives
the RRC “sole authority to regulate . . . the disposal of oil and gas NORM waste” like that which
contaminated the tubing that Forest gave McAllen.15 But the provision is part of a subchapter
requiring the TCEQ, the Health and Human Services Commission, and the RRC to “defin[e] their
respective duties”16 under the Texas Radiation Control Act.17 Like Section 26.131(a), Section
401.415(a), in context, delineates authority among agencies; it does not exclude judicial authority
over common-law claims. Forest cites statutes authorizing the RRC to regulate hazardous waste
associated with oil and gas operations.18 But none of those provisions remotely suggests, let alone
clearly indicates, that the RRC’s authority is intended to be exclusive of common-law actions.
Section 85.321 of the Texas Natural Resources Code provides that a landowner harmed by
a violation of a provision of Chapter 85 of the Texas Natural Resources Code or “another law of this
state prohibiting waste or a valid rule or order of the [RRC] may sue for and recover damages and
14
Jackson Cty. Vacuum Truck Serv., Inc. v. Lavaca-Navidad River Auth., 701 S.W .2d 12, 14 (Tex. App.–
Corpus Christi 1985, writ ref’d). Other statutes accompanying Section 26.131 allocate responsibility among agencies.
See T EX . W ATER C OD E §§ 26.129 (“Duty of Parks and W ildlife Department”), 26.130 (“Duty of Department of Health”),
and 26.1311 (“Duty of State Soil and W ater Conservation Board”).
15
T EX . H EALTH & S AFETY C O D E § 401.415(a).
16
Id. § 401.414.
17
Id. § 401.0005.
18
T EX . N AT . R ES . C O D E §§ 91.101(a)(4), 91.1011, 91.602(a).
7
have any other relief to which he may be entitled at law or in equity.”19 By conferring this right of
action for statutory, rule, and order violations, Forest argues, the Legislature necessarily implied that
the action is exclusive of any action asserting common-law rights. But as the United States Supreme
Court has observed, “[t]he force of any negative implication . . . depends on context. . . . [T]he
expressio unius canon does not apply unless it is fair to suppose that [the legislature] considered the
unnamed possibility and meant to say no to it . . . .”20 Here, the question is whether the Legislature
intended by Section 85.321 to abrogate landowners’ common-law claims, and in that context, its
intent must be expressed clearly, either explicitly or by necessary implication. It is certainly possible
to read a negative implication in Section 85.321, but it is hardly necessary. We cannot give the
statute the effect Forest urges.
Forest argues that if landowners may seek remediation of contamination both from the RRC
and through the courts, they can recover twice for the same injury, holding operators liable to pay
damages for contamination they are also ordered to clean up. Further, if a landowner does not spend
a damage award on remediation, the RRC remains responsible to the public to order cleanup of the
contamination. But the problem lies within the operator’s control. By seeking an RRC determination
of contamination allegations and complying with RRC cleanup orders, an operator can reduce or
eliminate the landowner’s damages. Forest argues nonetheless that the risk of operators’ double
liability remains, is “unsound public policy”, and is reason enough to confer on the RRC exclusive
19
Id. § 85.321.
20
Marx v. Gen. Revenue Corp., 133 S. Ct. 1166, 1175 (2013) (internal quotation marks omitted).
8
jurisdiction over contamination claims. But that is an argument for the Legislature. The issue for us
is whether the Legislature has demonstrated its clear intent to do so. It has not.21
B
Unlike exclusive agency jurisdiction, which implicates courts’ subject matter jurisdiction,
primary jurisdiction is a prudential doctrine that allocates power between courts and agencies when
both have authority to make initial determinations in a dispute.22 Under this doctrine, trial courts
should allow an administrative agency to initially decide an issue when: (1) an agency is typically
staffed with experts trained in handling the complex problems in the agency’s purview; and (2) great
benefit is derived from an agency’s uniformly interpreting its laws, rules, and regulations, whereas
courts and juries may reach different results under similar fact situations.23 If primary jurisdiction
requires a trial court to defer to an agency to make an initial determination, the court should abate
the lawsuit and suspend final adjudication of the claim until the agency has an opportunity to act on
the matter.24
The doctrine of primary jurisdiction does not apply to claims that are “inherently judicial in
nature”,25 such as trespass,26 one of McAllen’s claims. McAllen also asserted claims for negligence,
21
The parties disagree as to whether exclusive jurisdiction would bar the landowners’ breach-of-contract claim.
Because we find the RRC does not have exclusive jurisdiction, we need not reach this issue.
22
Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W .3d 212, 221 (Tex. 2002).
23
Id.
24
Id.
25
Amarillo Oil Co. v. Energy-Agri Prod., Inc., 794 S.W .2d 20, 26 (Tex. 1990).
26
Gregg v. Delhi-Taylor Oil Corp., 344 S.W .2d 411, 415 (Tex. 1961).
9
negligence per se, fraud, assault, intentional battery, and breach of contract, all inherently judicial
in nature. Nor is the RRC’s “primary jurisdiction . . . so broad-sweeping as to oust the courts of
jurisdiction just because the Commission might have jurisdiction to determine some facts related to
the controversy.”27 While the RRC may make determinations with respect to McAllen’s
contamination claims—indeed, it has already done so—it cannot thereby oust the court of
jurisdiction to decide those claims or refer the decision to arbitration.
Forest argues that the RRC has primary jurisdiction over McAllen’s claims because the
Surface Agreement required that Forest remove hazardous material it placed on the Ranch only “if,
as and when required by law”, and only the RRC can determine what the law requires. But while
RRC regulations and orders certainly inform the extent to which remediation of contamination is
required by law, they do not supplant Forest’s common-law duties, which are also required by law.
Further, the Surface Agreement also provides that Forest “shall not store or dispose of any hazardous
materials on the surface of the Leases”, “will not bring on the Leases any hazardous material”, and
will “perform remedial work where the need therefore arises as a result of and is caused by Lessees’
operations or activities on the Leases.” The RRC’s determinations of Forest’s obligations under its
rules do not preclude enforcement of Forest’s obligations under the Surface Agreement. McAllen’s
common-law claims are not dependent on the standards of regulatory compliance. Because
McAllen’s claims are inherently judicial, the doctrine of primary jurisdiction does not apply and
vacatur is not warranted for failure to abate the arbitration hearing.
27
Amarillo Oil, 794 S.W .2d at 26.
10
III
Forest argues that the arbitration award must be vacated because of arbitrator Ramos’ evident
partiality and the panel’s manifest disregard of Texas law. Forest also argues that the Surface
Agreement provides for full judicial review of the award.28
A
Courts must vacate arbitration awards when “the rights of a party were prejudiced by . . .
evident partiality by an arbitrator appointed as a neutral arbitrator.”29 Evident partiality is established
by the nondisclosure of “facts which might, to an objective observer, create a reasonable impression
of the arbitrator’s partiality”,30 regardless of whether the nondisclosed information necessarily shows
partiality or bias.31 But disclosure is required only if facts are material; an arbitrator need not disclose
“trivial” matters.32 Some undisclosed relationships are too insubstantial to warrant vacating an
28
Forest also argues that there are common-law grounds for vacating the arbitration award. W hile this appeal
has been pending, we held in Hoskins v. Hoskins that the Texas Arbitration Act “leaves no room for courts to expand
on [the statutory grounds for vacatur]”, and a party may avoid confirmation only by demonstrating a statutory ground
for vacatur. 497 S.W .3d 490, 494 (Tex. 2016). Forest concedes that Hoskins disposes of its argument for vacatur on
common-law grounds.
29
T EX . C IV . P RAC . & R EM . C O D E § 171.088(a)(2)(A).
30
Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437 S.W .3d 518, 524 (Tex. 2014).
31
Burlington N. R.R. Co. v. TUCO Inc., 960 S.W .2d 629, 636 (Tex. 1997).
32
Id. at 637.
11
award.33 And an arbitrator’s impartiality cannot be affected by something of which he is completely
unaware.34
McAllen’s objection to Ramos’ serving as a mediator in another case was not disclosed to
Forest. It is difficult to see how Ramos could be partial to McAllen for objecting to his serving as
a mediator in a case in which McAllen was a party. One would think, if anything, the objection
would have made Ramos biased against McAllen. But in any event, there is no direct evidence that
Ramos knew of the possible mediation, much less that McAllen had objected to avoid any conflict
with Ramos’ serving as an arbitrator in this case. Even if the fact that Ramos’ staff was contacted
about his serving as a mediator is circumstantial evidence that Ramos knew of the mediation, we
must defer to the trial court’s contrary finding if supported by the evidence.35 The trial court judged
the witnesses’ credibility and weight of their testimony, ultimately concluding that Ramos “should
not be disqualified for failure to disclose a trivial, non-prejudicial, not consummated invitation to
act as mediator.” The trial court’s implied finding that Ramos was unaware of the mediation is
supported by the evidence.36
B
Forest argues that the arbitration award must be vacated because the panel exceeded its
authority under the Settlement Agreement by awarding damages not permitted by Texas law and
33
Id. at 633.
34
Mariner Fin. Group, Inc. v. Bossley, 79 S.W .3d 30, 33 (Tex. 2002) (“Clearly, the relationship could not have
influenced Nettles’s partiality if, in fact, he was unaware of it during the arbitration.”).
35
See Tenaska, 437 S.W .3d at 523.
36
446 S.W .3d at 81.
12
issuing declarations that imposed its own notion of economic justice, all in manifest disregard of the
law. In determining whether an arbitrator has exceeded his authority, the proper inquiry is not
whether the arbitrator decided an issue correctly, but rather, whether he had the authority to decide
the issue at all.37
The Settlement Agreement calls for arbitration of McAllen’s claims,38 including that Forest
breached the Surface Agreement’s requirement that Forest “perform remedial work where the need
therefore arises as a result of and is caused by Lessees’ operations or activities on the Leases.” The
Settlement Agreement gives the arbitrators “the authority to award punitive damages where allowed
by Texas substantive law”. Forest argues that the panel’s award of damages exceeds Texas law, and
therefore the arbitrators exceeded their authority. But the Settlement Agreement also provides that
all “disputes relating to his Agreement or disputes over the scope of this arbitration clause[] will be
resolved by arbitration.” Under this provision, determining what damages Texas law allows is as
much within the arbitrators’ broad authority as determining the amount to be awarded.39 The panel’s
declarations clarified Forest’s remediation obligations under the agreements, outlining which
materials required remediation or removal and which parties would bear future costs. All these issues
are within the bounds of the parties’ agreements, and the panel was authorized to decide them.
37
Hoskins v. Hoskins, 497 S.W .3d at 494–495; see also Nafta Traders, Inc. v. Quinn, 339 S.W .3d 84, 90–91,
96–97 (Tex. 2011).
38
Forest Oil Corp. v. McAllen, 268 S.W .3d 51, 62 (Tex. 2008).
39
Id. at 61.
13
C
Generally, the Texas Arbitration Act restricts judicial review of arbitration awards, but parties
can, by “clear agreement”, contract for expanded judicial review.40 Forest argues that by authorizing
arbitrators “to award punitive damages where allowed by Texas substantive law”, the parties clearly
agreed to judicial review of any award. We disagree. One need only contrast the Settlement
Agreement’s treatment of discovery matters in the same paragraph. The agreement provides that the
panel is to “apply the Texas Rules of Civil Procedure” and its decisions are subject to the parties’
right to apply for relief to the district court, where the court shall apply an “abuse of discretion
standard and render such orders as may be necessary.” No such direction is provided in connection
with exemplary damages. In the absence of a clear agreement to limit the panel’s authority and
expand the scope of judicial review, this Court may not exercise expanded judicial review of
exemplary damages.
* * * * *
Accordingly, the court of appeals’ judgment is
affirmed.
Nathan L. Hecht
Chief Justice
Opinion delivered: April 28, 2017
40
Nafta Traders, Inc. v. Quinn, 339 S.W .3d at 101.
14