Fracturing defenses

Aug. 5, 2013
Evaluating and managing fracturing litigation risks.

Evaluating and Managing Fracturing Litigation Risks

W. Ray Whitman and Cassie Dallas Baker

The development of shale formations using hydraulic fracturing techniques has dramatically increased domestic production of oil and natural gas and spurred economic growth throughout the United States. The benefits of increased production are wide-ranging, but are not without controversy. Environmental lawsuits, including claims of groundwater contamination, surface pollution, and earthquakes allegedly caused by fracking and other development activities, are on the rise.

Despite technological advancements that allow operators to minimize potential environmental impacts, lawsuits and complaints of groundwater contamination related to oil and gas development (fracking activities in particular) have escalated since 2009. Unfortunately, these claims are likely to continue and now seem to be an unavoidable reality of operating in the industry. There are, however, practical solutions for evaluating and managing the risk of groundwater contamination litigation. By anticipating claims, taking protective measures, and proactively responding to threatened litigation, oilfield service providers and oil and gas operators can shape an effective strategy for addressing groundwater contamination claims.

Allegations of groundwater contamination and other environmental contamination related to oil and gas development have been raised in at least 40 reported lawsuits throughout the United States. In addition to those cases, there are reports of other private complaints made directly against operators. Although the claims arising out of hydraulic fracturing activities raise issues not dissimilar from those raised in other environmental and nuisance lawsuits, special attention is being paid to these cases because of the public interest in fracking and the potential for protracted litigation involving complex causation issues.

Contamination lawsuits concentrated in key development states

Not surprisingly, groundwater contamination claims are concentrated in areas that have seen drilling activities increase in the last few years, including Arkansas, Colorado, Louisiana, New York, Ohio, Pennsylvania, Texas, and West Virginia. While the availability of certain causes of action and remedies varies state-by-state, in almost all instances, the plaintiff's basic claim is that drilling and completion activities (such as fracking) on or near their property have caused personal injury, property damage, or substantial and unreasonable harm to the use and enjoyment of the property.

Plaintiffs in these cases tend to be individual land owners, families, or small groups of families. For example, one of the earliest cases, Zimmermann v. Atlas America LLC, was filed in 2009 by a married couple who owned only the surface rights to farmland in Pennsylvania. In the complaint, which has served as a model for other groundwater contamination lawsuits, the couple claimed that hydraulic fracturing fluids contaminated naturally existing aquifers on their property and destroyed their tomato farmland.

Several class-action lawsuits have been filed in which plaintiffs claim that drilling and completion operations polluted soil, groundwater, air, and water wells. The trend, however, appears to be away from class-action claims because of the difficulty of proving the commonality element, which requires plaintiffs to demonstrate that the putative class members have suffered the same injury.

A case in point is Ginardi v. Frontier Gas Services1, which involved complaints that the defendants' fracking operation polluted soil and groundwater. The court denied plaintiff's motion for class certification and dismissed the lawsuit, finding the case to be driven by individualized issues that required individualized proof, but only after plaintiffs and defendants had extensively briefed the issues raised in the motion for class certification.

Frequent claims relating to allegations of contamination

While the basic factual allegations tend to be similar in lawsuits related to allegations of contamination caused by hydraulic fracturing, there are important variations in the causes of action alleged and the types of relief sought. Understanding the types of claims to anticipate and the proof required for each is important to building an effective litigation defense strategy.

In most cases, plaintiffs allege negligence, gross negligence, trespass, and nuisance. In other cases, plaintiffs seek injunctive relief to stop drilling activities altogether. In still other cases, fraud and misrepresentation, as well as deceptive trade practices claims are common.

While nuisance claims are somewhat unrelated to direct contamination claims, nuisance lawsuits are growing in popularity. This is in part because plaintiffs view nuisance suits as a way to recover damages for alleged effects of drilling and fracking operations while avoiding the difficult causation issues that arise in typical negligence claims related to groundwater contamination. To establish a claim for private nuisance, plaintiffs must show that the operator's activities caused substantial and unreasonable harm to the use and enjoyment of their property. Loss of use and enjoyment of property is often shown through proof of excessive noise, vibrations, or odors from activities such as drilling or hydraulic fracturing.

Despite the seemingly less complicated elements of proof required for nuisance claims, it can be difficult for plaintiffs to show that the defendant's activities were unreasonable because questions of reasonableness generally turn on whether the utility of the activity outweighs its harm. Additionally, plaintiffs must demonstrate that the alleged interference is substantial, which means that the complained of activities must cause a real and appreciable interference with the plaintiff's use and enjoyment of the property—a slight inconvenience or petty, passing annoyance is insufficient.

Negligence-based claims are different. Generally, in groundwater contamination lawsuits alleging negligence on the part of operators, plaintiffs must prove that fractures occurring miles below the surface and separated from the water table by thousands of feet impervious rock directly caused contamination to a water well or aquifer near the surface. To prove their case, plaintiffs must show within a reasonable degree of scientific certainty that not only could contamination result generally from an operator's activities but also that contamination occurred specifically as alleged in the lawsuit. It is very difficult, if not impossible, in most situations for plaintiffs to meet this causation burden because the scientific evidence they must rely on is inconclusive or lacks the necessary reliability to prove that drilling and/or fracking activities caused the alleged groundwater contamination.

Although plaintiffs bear the burden of proof on causation, the issues may prove equally thorny and costly for defendants. As a result, oilfield service providers involved in drilling and fracking operations and operators should prepare prior to the drilling of an oil and gas well for the likelihood of groundwater contamination complaints. Practical steps that can help to defeat allegations of contamination include sampling water pre- and post-drilling and fracking to establish a baseline, conducting micro-seismic monitoring of fracking operations to determine areal extent of fractures and the magnitude of forces exerted on subsurface formations, and properly allocating risk by way of master service agreements.

Litigation tools to use in defending ground water contamination lawsuits

Once litigation has commenced, defendants have numerous litigation tools available to defeat or minimize the effect of groundwater contamination claims, including moving early in the lawsuit for a modified case management plan (sometimes referred to as a "Lone Pine Order"), challenging plaintiff's experts on causation, and filing motions to dismiss and summary judgment motions during the pre-trial stage.

Of these available resources, seeking a Lone Pine Order or modified case management plan can be the most effective. A Lone Pine Order limits initial discovery to causation issues and requires plaintiffs to provide some evidence of causation issues first before additional discovery is allowed. Such modified case management orders are designed to head off frivolous claims before the parties expend time and money conducting extensive discovery. Both state and federal courts have entered Lone Pine Orders, which are granted at the court's discretion.

A plaintiff's failure to comply with a Lone Pine Order may result in dismissal of the lawsuit. For example in Strudley v. Antero Resources Corporation2, a Colorado state court judge dismissed the plaintiff's lawsuit when the plaintiff failed to produce evidence of general and specific causation as required by the order.

The use of Lone Pine Orders in hydraulic fracturing related cases is relatively recent, and thus far, results have been mixed, with some courts granting defense motions for modified case management plans and other courts refusing to enter such orders in the absence of facts indicating that traditional discovery and a standard case management order would be ineffective. Nevertheless, a Lone Pine Order typically is worth pursuing based on it possibly leading to early dismissal of a lawsuit.

Understanding risks can lead to better outcomes

By recognizing that ground water contamination lawsuits are likely to increase and expand into areas where drilling and fracking activities are increasing, operators and oilfield service providers can implement measures to manage the risks associated with such lawsuits. Anticipating the types of claims that are likely to be made will allow operators and oilfield service providers to implement pre-litigation strategies designed to minimize exposure to liability, as well as to develop an effective defense when lawsuits occur.

About the authors

W. Ray Whitman is group chair of BakerHostetler's national litigation group. He serves as a co-leader of the firm's national shale team. He has successfully represented energy, oilfield service, and technology companies in a wide variety of litigation and business-related issues. In addition to his law degree, he has a degree in geophysics.

Cassie Dallas Baker is an associate with BakerHostetler. She assists clients in a variety of litigation matters in state and federal court, including commercial litigation, oil and gas litigation, personal injury defense, admiralty litigation, and collection matters.

1Ginardi v. Frontier Gas Servs., LLC, No. 4:11-cv-0420 (E.D. Ark. May 17, 2011).

2Strudley v. Antero Res. Corp., No.2011-cv-2218 (Denver Cnty. Dist. Ct., Colo. Mar. 23, 2011).