Opinion
CIVIL ACTION NO. 5:23-CV-101
2023-08-23
Craig YOHO and Samuel D. Yoho, individually and on behalf of a putative class, Plaintiffs, v. SOUTHWESTERN ENERGY COMPANY and SWN Production Company, LLC, Defendants.
Brian R. Swiger, John W. Barrett, John A. Budig, Bailey & Glasser, LLP, Charleston, WV, Jeffrey Earl Parsons, Bailey & Glasser LLP, Wheeling, WV, Benjamin J. Hogan, Bailey & Glasser, LLP, Morgantown, WV, for Plaintiffs. Chelsea Rebecca Heinz, Babst, Calland, Clements and Zomnir, P.C., Pittsburgh, PA, R. Paul Yetter, Pro Hac Vice, Robert Durham Woods, Pro Hac Vice, Yetter Coleman LLP, Houston, TX, Robert M. Stonestreet, Timothy M. Miller, Babst, Calland, Clements & Zomnir, P.C., Charleston, WV, for Defendants.
Brian R. Swiger, John W. Barrett, John A. Budig, Bailey & Glasser, LLP, Charleston, WV, Jeffrey Earl Parsons, Bailey & Glasser LLP, Wheeling, WV, Benjamin J. Hogan, Bailey & Glasser, LLP, Morgantown, WV, for Plaintiffs. Chelsea Rebecca Heinz, Babst, Calland, Clements and Zomnir, P.C., Pittsburgh, PA, R. Paul Yetter, Pro Hac Vice, Robert Durham Woods, Pro Hac Vice, Yetter Coleman LLP, Houston, TX, Robert M. Stonestreet, Timothy M. Miller, Babst, Calland, Clements & Zomnir, P.C., Charleston, WV, for Defendants. ORDER JOHN PRESTON BAILEY, UNITED STATES DISTRICT JUDGE
Pending before this Court is Defendants' Motion to Dismiss Counts 1 and 3 for Failure to State a Claim Upon Which Relief Can Be Granted [Doc. 34] and accompanying memorandum of law in support [Doc. 35], filed July 24, 2023. Plaintiffs filed a Memorandum in Opposition to Defendants' Motion to Dismiss Counts One and Three [Doc. 40] on August 7, 2023. A Reply [Doc. 47] was filed on August 21, 2023. The Motion has been fully briefed and is ripe for adjudication. For the reasons that follow, this Court will deny Defendants' Motion to Dismiss.
I. Background
Plaintiffs Samuel D. Yoho and Craig A. Yoho own oil and gas interests in Marshall County, West Virginia. Plaintiffs are mineral owners and unit participants in the MDF/Hammers 9 Well, Hammers Unit, API No. 47-051-01292 (the "Parent Well"), a horizontal shale gas well owned and operated by defendants. [Doc. 28 at ¶¶ 12, 13, & 21].
On or around May 6, 2010, the Parent Well was completed. [Id. at ¶ 22]. Over seven (7) years later, on a separate, adjacent property, Defendants completed a child well, the "Shawn Harlan MSH 1H," API No. 47-051-01881 (the "Child Well"). [Id.].
The First Amended Complaint alleges the drilling, fracking, and completion of the Child Well was the external force that led to the preventable phenomenon known as "well bashing." See generally [id.]. As the First Amended Complaint explains:
3. Well bashing occurs when a newer "child well" is drilled, fracked and completed near an older "parent well" that is already producing natural gas. In the scenario at hand, both wells are horizontally drilled and hydraulically fractured ("fracked") — that is, a mixture consisting of water, chemicals, and usually sand, is injected at high pressure into the geological substrata to force open existing fractures, create new ones, and extract oil and gas from a shale formation. This fracking creates fracture networks which allows oil and gas to escape the tightly packed shale formation and enter the well and ultimately the surface. These fracture networks are critical to the overall productivity of a horizontally drilled and fracked shale well; without these subsurface pipelines through which the gas travels, these shale wells would not be economically viable.[Id. at ¶ 3]. The First Amended Complaint alleges the Parent Well "was impacted by an external force that sharply reduced its production trajectory: Southwestern's drilling, fracking and completion of the adjacent Shawn Harlen Child Well." [Id. at ¶ 24].
Plaintiffs argue that Defendants' well-bashing lowered the overall productivity of the Parent Well through physical injury resulting in the negligent waste of gas, nuisance and the breach of the implied covenant of reasonable development. See [id. at ¶ 41-52]. For relief, plaintiffs seek (1) a certification of the proposed class; (2) judgment against defendants on all claims, and in such amounts as will fully and adequately compensate plaintiffs and class members for their damages; (3) pre-and post-judgment interest; (4) expenses of litigation, including reasonable attorneys' fees; and (5) any other relief the Court deems appropriate. See [id. at ¶ 53].
II. Standard of Review
A complaint must be dismissed if it does not allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); see also Giarratano v . Johnson , 521 F.3d 298, 302 (4th Cir. 2008) (applying the Twombly standard and emphasizing the necessity of plausibility). When reviewing a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must assume all of the allegations to be true, must resolve all doubts and inferences in favor of the plaintiff, and must view the allegations in a light most favorable to the plaintiff. Edwards v. City of Goldsboro , 178 F.3d 231, 243-44 (4th Cir. 1999).
When rendering its decision, the Court should consider only the allegations contained in the Complaint, the exhibits to the Complaint, matters of public record, and other similar materials that are subject to judicial notice. Anheuser-Busch , Inc. v. Schmoke , 63 F.3d 1305, 1312 (4th Cir. 1995). In Twombly , the Supreme Court, noted that "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do . . . ." Twombly , 550 U.S. at 555, 570, 127 S.Ct. 1955 (upholding the dismissal of a complaint where the plaintiffs did not "nudge[ ] their claims across the line from conceivable to plausible.").
This Court is well aware that "[M]atters outside of the pleadings are generally not considered in ruling on a Rule 12 Motion." Williams v. Branker , 462 F. App'x 348, 352 (4th Cir. 2012). "Ordinarily, a court may not consider any documents that are outside of the Complaint, or not expressly incorporated therein, unless the motion is converted into one for summary judgment." Witthohn v. Fed. Ins. Co., 164 F. App'x 395, 396 (4th Cir. 2006). However, the Court may rely on extrinsic evidence if the documents are central to a plaintiff's claim or are sufficiently referred to in the Complaint. Id. at 396-97.
III. Analysis
A. Count 1 - Negligence
1. Atkinson v. Virginia Oil & Gas Co., 72 W.Va. 707, 79 S.E. 647 (1913)
Defendants move to dismiss Count 1 for three (3) reasons. First, West Virginia law does not recognize a duty to refrain from drilling oil and gas wells adjacent to existing wells (i.e., "offset wells" that do not constitute a physical trespass. See [Doc. 35 at 7-9]. Second, Count 1 is precluded by the "Rule of Capture." See [id. at 9-12]. Third, Count 1 is barred by the "Gist of the Action" doctrine in light of leases that govern oil and gas development activities on plaintiffs' properties. See [id. at 12-16].
Count 1 of the Complaint alleges:
41. In the course of planning, designing and operating natural gas wells adjacent to those wells in which Plaintiffs and class members have an interest, Defendants have a duty to use reasonable care to avoid the negligent waste or destruction of the gas imbedded in the Plaintiffs' and class members' neighboring gas-bearing strata. Eliff [Elliff] v. Texon Drilling Co., 146 Tex. 575, 584 (Tex. 1948); Atkinson v. Virginia Oil & Gas Co., 72 W.Va. 707, 79 S.E. 647, 648 (1913).[Doc. 28 at 11].
The parties dispute the application of Atkinson v. Virginia Oil & Gas , Co., 72 W.Va. 707, 79 S.E. 647 (1913). In Atkinson , plaintiff had a producing gas well on his property, and on the adjacent party, defendant operated an oil well producing in the same formation as plaintiff's gas well. 72 W.Va. at 707, 79 S.E. at 647-48. Defendant abandoned the well without "plugg[ing] it or taken any other precaution against the escape of gas or oil or surface water or damage to the adjacent property or the well thereon." Id. Because of defendant not plugging the well, water entered through the abandoned well into the strata of gas-bearing sand. Id. The entry of water into the formation via defendant's abandoned well "permeated it as to obstruct, impede, and destroy the flow of gas into the plaintiff's well, so that it became worthless, and was wholly lost to him as a producing well." Id.
Plaintiff brought suit, alleging defendant failed in its statutory duties to plug the well, but also failed to take precautions to avoid injury to plaintiff's property. Id. The trial court dismissed plaintiff's claims, and plaintiff appealed to the West Virginia Supreme Court of Appeals ("WVSCA"). The WVSCA reversed the trial court, finding under the common law:
[t]he owner was bound to use his property in such manner as not to injure the property of the adjacent owner, provided he could avoid such injury by the exercise of care and abstention from negligence. In other words, having the right as owner to the full enjoyment of his property and to do thereon what he pleased, he was nevertheless bound to exercise care in such use to avoid injury to his neighbor, if such injury could be avoided by the adoption and observance of reasonable precautions.Id. Thus, Atkinson stands for the proposition that a landowner has a duty to avoid causing physical injury to another neighbor's real property.
In this case, defendants argue that Atkinson is inapplicable because plaintiffs did not allege physical damage to their property. However, plaintiffs have alleged damage to their real property via defendants' use of the Child Well. Specifically, plaintiffs have alleged that defendants' well-bashing has lowered the Parent Well's fracture network:
4. The "bashing" damage to the parent well occurs because of delayed drilling, fracking and completion of the child well. The delay between drilling, completion and operation of the parent well and fracking of the child well makes the parent well's fracture network more vulnerable to dmaage from external forces such as pressure waves, fluids and proppants used while fracking the child well. The parent well is more vulnerable because as it operates and produces hydrocarbons and water, the reservoir pressure surrounding the parent's fracture network decreases, resulting in a pressure sink. When a child well is drilled in a timely manner, the pressure surrounding the parent well's fracture network is sufficient to protect the parent well's fracture network. However, when drilling and fracking of the child well is delayed, the energy from the frac, and sometimes fluids and propellants, grows preferentially towards the lower pressure area surrounding the parent well permanently damaging the parent well. Once permanently damaged, the overall lifetime recovery of natural gas and other marketable hydrocarbons from the parent well's reservoir is decreased.[Doc. 28 at ¶ 4, 5, & 24]. Moreover, plaintiffs have alleged there are "a number of drilling and development methods that can be used to prevent this type of damage to the natural resources[,]" including "combo development" and other methods of developing wells with "regard to sound sequencing and spacing." See [id. at ¶ 6].
5. Stated differently, when a child well is drilled, fracked and completed adjacent to a parent well, the child well's frac energy grows preferentially towards the parent well's pressure sink. In turn, the parent well's fracture network—or the subsurface pathways in which gas travels into the well—is damaged by this pressure wave, resulting in an external force that changes the production trajectory of the parent well.
* * *
24. Here, the Hammers Unit Parent Well was impacted by an external force that sharply reduced its production trajectory: Southwestern's drilling, fracking and completion of the adjacent Shawn Harlan Child Well. As a result, the Hammers Unit Parent Well experienced the well bashing phenomemon as described supra.
Viewing the allegations in the light most favorable to plaintiffs, this Court finds that plaintiffs have sufficiently alleged that the Parent Well was physically harmed by the negligent drilling, fracking, and completion of the Child Well. Defendants' argument that "the complaint does not (and cannot) allege that Defendants violated any established industry custom or standard or any statutory duty" is not well-taken. The standard is imposed by the common law duty to avoid causing harm to a neighbor's substrata that was recognized, 110 years ago in Atkinson. Thus, this Court denies defendants' Motion to Dismiss Count 1 of the Complaint.
2. The Rule of Capture
Defendants next argue that the Rule of Capture precludes plaintiffs' negligence claim in Count 1.
West Virginia recognizes the venerable common law doctrine of capture:
[Oil and gas] belong to the owner of the land, and are part of it, so long as they are on it or in it subject to his control; but when they escape and go into other land, or come under another's control, the title of the former owner is gone. If an adjoining owner drills his own land, and taps a deposit of oil or gas, extending under his neighbor's field, so that it comes into his well, it becomes his property.Trent v. Energy Dev. Corp., 902 F.2d 1143, 1147 (4th Cir. 1990) (quoting Brown v. Spilman , 155 U.S. 665, 670, 15 S.Ct. 245, 39 L.Ed. 304 (1895) (citation omitted)). "As incident to his ownership in place the landowner may, without liability, drain oil or gas from his neighbor's land by operations on his own land, without liability to account thereof." Robert T. Donley, Law of Coal, Oil and Gas in West Virginia and Virginia § 18 (1951) (citing Gain , et al. v. South Penn Oil Co., et al., 76 W.Va. 769, 86 S.E. 883 (1915)).
"When drilling near the boundary of non-leased property, the 'rule of capture' permits companies to extract gas that migrates from beneath the non-leased land, across the boundary line, to the company's wellbore." Barber v. Magnum Land Services , LLC , 2014 WL 5148575, at *4 (N.D. W. Va. Oct. 14, 2014) (Keeley, J.) (citing Energy Dev. Corp. v. Moss , 214 W.Va. 577, 591 S.E.2d 135, 147 (2003) (quoting Powers v. Union Drilling , Inc., 194 W.Va. 782, 461 S.E.2d 844, 849 (1995))). Furthermore,
The rule of capture applies primarily in the context of expansive gas reservoirs, in which the gas easily flows to low pressure areas. In the case of the Marcellus Shale, however, the gas is locked tightly within nonporous rock. Consequently, traditional drilling methods provide insufficient means of extraction. Rather, companies utilize hydraulic fracturing by pumping fluid chemicals through the wellbore causing cracks in the rock formation and releasing trapped gas. They then inject proppants, such as sand, into the fissures to prevent them from closing.Barber , 2014 WL 5148575, at *4.
In this case, the Rule of Capture is not applicable. Plaintiffs allege a physical harm to the well. The Rule of Capture was formulated to address the factual scenarios where a well on one property is draining oil and gas from an adjacent property, without any intervening negligence, trespass, or nuisance. Plaintiffs are not alleging that the production of the Child Well has drained the oil and gas from the Parent Well. Plaintiffs have asserted that the drilling, completion and fracking of the Child Well has harmed the Parent Well and its production capabilities moving forward. The Rule of Capture does not cover the fact pattern of this case. Thus, this Court finds that the Rule of Capture is inapplicable and this case is outside the scope of the Rule of Capture.
3. Gist of the Action Doctrine
Defendants argue the Gist of the Action Doctrine precludes Count 1 because all four circumstances identified in Gaddy Eng'g Co. v. Bowles Rice McDavid Graff & Love , 231 W.Va. 577, 746 S.E.2d 568 (2013) exist. See [Doc. 68 at 13]. First, any liability between the parties arises solely from an oil and gas lease. See [id. at 13-14]. Second, the duty to develop the oil and gas underlying plaintiffs' properties, and the parties' respective rights and obligations with respect to that development, are grounded in the lease. See [id. at 14-15]. Third, any liability between the parties stems from the lease. See [id. at 15]. Fourth, the success of any tort claim against defendants concerning the manner of development of plaintiffs' oil and gas is dependent on the success of demonstrating a breach of a lease. See [id. at 15-16].
Under West Virginia law, if an action in tort would arise independent of the existence of a contract, it is a viable cause of action. In other words, " 'whether a tort claim can coexist with a contract claim is determined by examining whether the parties' obligations are defined by the terms of the contract.' " Soyoola v. Oceanus Ins. Co., 986 F.Supp.2d 695, 707 (S.D. W.Va. 2013) (Goodwin, J.) (citing Gaddy Eng'g Co. v. Bowles Rice McDavid Graff & Love , 231 W.Va. 577, 586, 746 S.E.2d 568, 577 (2013)). The "gist of the action" doctrine under West Virginia law only bars a tort action if a party establishes one of the following:
(1) where liability arises solely from the contractual relationship between the parties; (2) when the alleged duties breached were grounded in the contract itself; (3) where any liability stems from the contract; and (4) when the tort claim essentially duplicates the breach of contract claim or where the success of the tort claim is dependent on the success of the breach of contract claim.Gaddy , 231 W.Va. at 586, 746 S.E.2d at 577.
"Tort liability of the parties to a contract arises from breach of some positive legal duty imposed by law because of the relationship of the parties, rather than from a mere omission to perform a contract obligation. An action in tort will not arise from breach of contract unless the action in tort would not arise independent of the existence of the contract." Syl. Pt. 9, Lockhart v. Airco Heating & Cooling , Inc., 211 W.Va. 609, 567 S.E.2d 619 (2002). "A tort, although growing out of a contract, must nevertheless possess all of the essential elements of tort." Syl. Pt. 10, id.
Case law in West Virginia involving royalties and deductions likewise establishes that claims of fraudulent conduct constitute independent torts which are fully actionable under the laws of West Virginia. See Glover v . EQT Corp., 2020 WL 13094071 (N.D. W. Va. June 1, 2020) (Bailey, J.); Kay Co., LLC v. EQT Prod. Co., 2018 WL 11411389 (N.D. W. Va. Nov. 1, 2018) (Bailey, J.); Tawney v. Columbia Natural Res., LLC , 2007 WL 5539870 (W. Va. Cir. Ct. June 27, 2007). Further, cases outside the specific context of royalties and deductions establish that fraud can be an independent tort despite the presence of breach of contract claims. See Travelers Prop . Cas. Co. of America v. Mountaineer Gas Co., 2015 WL 7196515 (S.D. W. Va. Nov. 16, 2015) (Goodwin, J.); Soyoola , 986 F.Supp.2d 695; Croston v. Emax Oil Co., 195 W.Va. 86, 464 S.E.2d 728 (1995); Melton v. Precision Laser & Instrument , Inc., 2013 WL 210900 (S.D. W. Va. Jan. 18, 2013) (Copenhaver, J.); Backwater Properties , LLC v. Range Resources-Appalachia , LLC , 2011 WL 1706521 (N.D. W. Va. May 5, 2011) (Keeley, J.); Wheeling Pittsburgh Steel Corp. v. Central West Virginia Energy Co., 2007 WL 4959806 (W. Va. Cir. Ct. Aug. 2, 2007).
In this case, plaintiffs Amended Complaint sufficiently alleges that plaintiffs and class members have the right to enjoy their property free from substantial and unreasonable harm to, and interference with, those rights. See Atkinson , 72 W.Va. 707, 79 S.E. 647. Furthermore, plaintiffs have sufficiently alleged that by drilling Child Wells on adjacent property, defendants have reduced, through damage, the production of the wells in which plaintiffs and class members have an interest, and thus defendants substantially and unreasonably interfered with plaintiffs' and class members' property rights. This conduct arises independently of the existence of the subject leases. The Gist of the Action Doctrine does not preclude Count 1 of plaintiffs' Complaint.
B. Count 3 - Private Nuisance
Defendants request this Court to dismiss plaintiffs' nuisance claim because "it is just a re-packaged version of Count 1." See [Doc. 35 at 16-17].
Under West Virginia law, "[a] private nuisance is a substantial and unreasonable interference with the private use and enjoyment of another's land." Syl. Pt. 1, Hendricks v. Stalnaker , 181 W.Va. 31, 380 S.E.2d 198 (1989). Private nuisance "includes conduct that is intentional and unreasonable, negligent or reckless, or that results in an abnormally dangerous conditions or activities in an inappropriate place." Id. at 33-34, 380 S.E.2d at 200.
"In order for an interference to be 'substantial' or 'significant,' the interference must 'involv[e] more than slight inconvenience or petty annoyance[,] . . . there must be a real and appreciable invasion of the plaintiff's interests[.]' " Carter v. Monsanto Co., 212 W.Va. 732, 737, 575 S.E.2d 342, 347 (2002) (quoting Restatement (Second) of Torts § 821 F(c) (1979)). "An interference with the private use and enjoyment of another's land is unreasonable when the gravity of the harm outweighs the social value of the activity alleged to cause the harm." Syl. Pt. 2, id.
In this case, plaintiffs' nuisance claim alleges "[b]y drilling child wells on adjacent property in the manner described above, thereby reducing the production of the wells in which Plaintiffs' and class members have an interest, Defendants substantially and unreasonably interfere with Plaintiffs' and class members property rights." See [Doc. 28 at ¶ 49]. Construing all inferences in favor of plaintiffs, this Court finds that plaintiffs have sufficiently pled nuisance in the Complaint.
1. The Rule of Capture
Defendants assert that "the Rule of Capture provides that Plaintiffs have no property rights to oil and gas that may be produced through an oil and gas well drilled into adjacent property." See [Doc. 35 at 17].
As stated above, plaintiffs allege a physical harm to the well. The Rule of Capture was formulated to address the factual scenarios where a well on one property is draining oil and gas from an adjacent property, without any intervening negligence, trespass, or nuisance. Plaintiffs are not alleging that the production of the Child Well has drained the oil and gas from the Parent Well. Plaintiffs allege that the Hammers Unit Parent Well was impacted by an external force that sharply reduced its production trajectory. Thus, the Rule of Capture is not applicable and this Court will deny defendants' request to dismiss plaintiffs' nuisance claim.
2. The Gist of the Action
Defendants assert that the Gist of the Action Doctrine precludes plaintiffs' nuisance claim "because the manner of development of oil and gas underlying Plaintiffs' properties is governed by a lease that serve as the source of the parties' respective rights, duties, obligations, and liabilities." See [Doc. 35 at 17].
At this stage of the litigation, plaintiffs have sufficiently alleged that the tort actions arise independent of the lease agreement between plaintiffs and defendants. There is no dispute that plaintiffs and defendants have a lease. Defendants hold leases on both adjacent properties. However, the tort actions alleged stem from the conduct arising out of defendants' activities which occurred on the adjacent property to which plaintiffs' are not parties. Thus, the Gist of the Action Doctrine does not preclude plaintiffs' nuisance claim and this Court denies defendants' request to dismiss the nuisance claim.
IV. Conclusion
For the foregoing reasons, Defendants' Motion to Dismiss Counts 1 and 3 for Failure to State a Claim Upon Which Relief Can Be Granted [Doc. 34] is DENIED.
It is so ORDERED.