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Sept. 10 — Legal battles over natural gas and petroleum fracking are on the rise, as gas and petroleum producers and environmentalists spar over state preemption of local fracking bans as well as federal rulemaking.
At the same time, those living near fracking operations and other private parties continue to file fracking tort claims alleging personal injury, property damage, workplace exposure and product liability.
Property owners and other plaintiffs have also filed a variety of class actions, alleging fracking has contaminated well water, caused earthquakes, and contaminated air, but a groundswell of mass tort actions over fracking has yet to materialize.
Nevertheless, attorneys interviewed for this Bloomberg BNA special report predict that fracking litigation has only just begun, and that new causes of action, including natural resource damage and insurance disputes may be on the horizon.
While legal battles over fracking are being fought on many fronts, state-level challenges to local fracking bans are one of the major focal points, attorneys say.
Industry is focused on state-level challenges to fracking ordinances largely because it would be unwieldy to address the issue at the municipal level, sources say.
“We’ve seen at the local level a lot of fights that have gotten more attention with attempts to introduce bans,” Kate DeAngelis with Friends of the Earth, an environmental advocacy group, told Bloomberg BNA Aug. 24.
“The oil and gas industry and the American Legislative Exchange Council (ALEC) have been stepping in because they don’t want to see this become a trend, so they put pressure on state government to push back against those localities,” she said.
“If industry can win at a state level, and enact a statute that preempts localities from enacting anti-fracking ordinances, they can basically deal with everything across a state in one action, one swoop,” attorney Carl Pernicone, a partner with Wilson Elser Moskowitz Edelman & Dicker LLP in White Plains, N.Y., told Bloomberg BNA Aug. 26.
Pernicone is co-chair of the firm’s insurance-reinsurance coverage practice, and has extensive experience with matters involving toxic tort and environmental liability claims, including property insurance claims.
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“But if you’re dealing with states like New York, which empower localities to enact these kinds of regulations, it’s a green light for the anti-fracking groups to come in and try to force this battle to be fought literally on a county-by-county, city-by-city basis. If industry has to do that, it becomes very, very expensive. At the end of the day, people may just throw their hands up and say, ’You know what? It ain’t worth it,’” he said.
“It’s an important fight, and it’s far from over.”
“Colorado is a bellwether for a lot of this, and both sides of the battle see that. If the opponents can make a strong case there and put Colorado on their side of the ledger, that’s a pretty significant setback. On the other hand, the industry is pushing back fiercely.”
States have come down on different sides of the issue, with top courts in New York and Pennsylvania finding state law doesn’t preempt local bans, while Colorado trial courts have ruled ordinances are preempted. The Colorado Supreme Court has been asked to weigh in on the issue.
“Colorado is a bellwether for a lot of this, and both sides of the battle see that. If the opponents can make a strong case there and put Colorado on their side of the ledger, that’s a pretty significant setback. On the other hand, the industry is pushing back fiercely,” Pernicone said.
“There’s been a tremendous amount of anti-fracking activity in Colorado, and many respects is Ground Zero because they [opponents of fracking] have such extensive resources,” he said.
“There are two [Colorado] cases to watch involving challenges in Longmont and Lafayette (Colorado Oil and Gas Ass'n v. Longmont, Colo. Dist. Ct., No. 13-CV-63, trial court ruling 7/24/14; Colo. Oil & Gas Ass'n v. City of Lafayette, Colo. Dist. Ct., No. 13-CV-31746, trial court ruling 8/27/14).
“In both instances, the courts sided with the energy industry. Both cases are definitely going up [on appeal]. Both should be watched.”
Meanwhile, federal action or inaction continues to be the subject of legal challenges.
In March 2015, the state of Wyoming filed a petition to review the Interior Department’s rule regulating fracking on federal lands. The U.S. District Court for the District of Wyoming, in June 2015, delayed implementation of the rule.
“What I’ve seen in the broadest, tree-top level, over a five-year timeline, is that at the federal regulatory level you’re starting to see the fruits of long-running rulemaking that has been in the works,” Michael S. Freeman with Earthjustice, another environmental advocacy group, told Bloomberg BNA Aug. 24.
Freeman said Sept. 4 that an updated schedule in the case likely will result in a court decision on the preliminary injunction in early October.
The draft methane rule, which the EPA released Aug. 18, is another example of that, Freeman said. The rule would regulate emissions from new and modified sources and would apply to new fracking wells because some methane gas escapes during the fracking process.
While industry says the rule is unnecessary, environmentalists say the measure, which doesn’t address existing sources, doesn’t go far enough.
Both industry and environmentalists, however, say it’s too early to predict whether a legal challenge will be filed.
“We’re still in the process of reviewing what the EPA proposed,” Frank Macchiarola, executive vice president with America’s Natural Gas Alliance (ANGA), told Bloomberg BNA Aug. 25.
“We will consider all of the options, but it’s premature to determine what our approach will be,” he said.
DeAngelis said Friends of the Earth is also still reviewing the proposed rule.
“If EPA doesn’t take into account existing sources, on their own, we’ll consider pushing them to do that,” she said.
A coalition of seven environmental groups are also threatening to sue the EPA to compel it to update its rules on handling and disposal of waste generated from oil and gas activities including fracking operations.
“Towards the end of the Obama administration, I think we will be seeing more regulations addressing the impact of oil and gas development,” Freeman said.
“I would not be surprised if the case we’re litigating in Wyoming now is not the last lawsuit.”
Plaintiffs also continue to file tort actions, both individually and as class members, alleging environmental contamination, personal injury, workplace exposure and product liability.
In all of these suits, the plaintiffs must surmount the hurdle of proving the chemical “cocktail” used in fracking, or other related additives, caused their damages.
Courts have split on whether Lone Pine case management orders, which require plaintiffs to show causation at the beginning of the case, are allowed.
Attorney Frank Leone with Hollingsworth LLP in Washington, D.C., told Bloomberg BNA that the most interesting pre-trial resolution thus far was in Baker v. Anschutz Exploration Corp, 68 F. Supp. 3d 368 (W.D.N.Y. 2014).
There, the U.S. District Court for the Western District of New York required a Lone Pine order and found the plaintiffs’ compliance adequate. But, it later excluded the plaintiffs’ testimony under the reliability standards for expert testimony detailed in Daubert v. Merrell Dow Pharmaceuticals., Inc., 509 U.S. 579 (U.S. 1993), and granted summary judgment to the natural gas operators.
Leone specializes in environmental and toxic tort litigation.
But even in those jurisdictions that don’t require such a showing, the plaintiffs ultimately must establish causation.
“Causation continues to be a big issue, and will continue to be,” Pernicone said.
“So often, the plaintiffs just can’t prove their case. That’s one of the reasons you so often see these claims for medical monitoring.”
“Most of the plaintiffs aren’t claiming they have some immediate, present injury,” he said.
Pernicone distinguished Parr v. Aruba Petroleum Inc., in which a Texas jury awarded $2.9 million to a family who alleged contamination from the defendant’s fracking operations caused them a variety of personal injuries.
“In the Parr case, you had plaintiffs coming forward with physical injuries—claiming they had rashes, nosebleeds, nausea—you might question whether they were real or not, but they actually had injuries. And that was a big difference.”
But plaintiffs’ attorney Scott Poynter with Poynter Law Group in Little Rock, Ark., says it's important to distinguish between general and specific causation.
Poynter represents fracking plaintiffs in several cases, including Ladra v. New Dominion, 2015 BL 208537, Okla., 6/30/15, in which the state supreme court reinstated allegations that fracking operations triggered an earthquake which caused a woman’s personal injuries.
“General causation isn’t that hard—the science is there and it’s been there for years—but specific causation as to this well causing this earthquake is going to be harder in those areas,” Poynter told Bloomberg BNA Aug. 25.
While several class actions over fracking have been filed to date, we haven't seen significant mass torts arising from fracking as many anticipated a few years ago, attorney Brent Allen with Greenberg Traurig in Washington D.C. told Bloomberg BNA Aug. 31.
Allen focuses his practice on the litigation of complex business disputes, and has experience involving refinery operations, gasoline distribution, and natural gas gathering and processing.
“I believe many plaintiffs’ lawyers were keeping close watch on the fracking situation to determine whether they could demonstrate some causal link between fracking and asserted injuries, and were positioning themselves to handle fracking mass torts matters. Happily, however, there have not been many mass tort events associated with fracking,” he said.
“I suspect part of the reason is that industry has been under a lot of scrutiny and regulation on fracking, and so has been especially careful to limit risks. Any mistakes are quickly and thoroughly investigated, so they are handled while still small in scope. I still see evidence of plaintiffs’ lawyers looking for some connection, but they are now looking farther afield,” Allen said.
Another reason that mass tort case filings haven't mirrored the uptick in new wells that have been drilled in recent years may be the unique circumstances of each well—a factor distinguishing these suits from multidistrict litigation involving ground water contamination allegedly caused by the gasoline additive methyl tertiary butyl ether (In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig., S.D.N.Y., No. 07-cv-10470).
“The plaintiffs certainly could argue that the MTBE litigation provides a road map for failure-to-warn claims,” Pernicone, of Wilson Elser, said.
“Superficially, that has some appeal. But when you look at it closely, it doesn’t survive scrutiny. First, there’s no credible evidence, at all, linking fracking fluid with ground water contamination. As recently as last June, the EPA came out and said that, at this point, that there's no evidence at all that any of the elements of fracking have any impact, systemic or otherwise, on ground water.”
“The other thing is that a lot of the MTBE litigation preceded the Dukes v. Walmart case (Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541, 2011 BL 161238 (2011)). That case is going to make it much, much harder for plaintiffs to consolidate or get class action status for these cases because of the need to focus on individualized determinations,” Pernicone said.
In Dukes, the Supreme Court said a proposed class of over a million female Wal-Mart workers alleging pay and promotion discrimination couldn't be certified because they failed to establish enough of a common thread in the case to tie their claims together.
Freeman, of Earthjustice, disputed the notion that ground water contamination evidence is lacking.
“Industry regularly beats the drum that there is very little documented evidence of fracking causing accidents,” Freeman said. “The science is starting to catch up with them on that. There’s a growing body of evidence suggesting there’s problems with ground water contamination from well casings or well cementing or pits.”
J. Michael Showalter with Shiff Hardin in Chicago told Bloomberg BNA Aug. 27 he couldn't completely rule out an MDL in fracking litigation.
Showalter handles environmental litigation for the firm, mostly on the East Coast.
“I guess you could have a small, issue-focused MDL, but in general it seems unlikely you’ll have anything like MDL 875 that dealt with asbestos and vacuumed 90,000 to 100,000 cases for 15 years,” he said.
He referred to In re Asbestos Prods. Liab. Litig. (No. VI), E.D. Pa., No. 02-875.
The attorneys said that earthquakes linked to fracking operations, however, might change the legal landscape.
Poynter also represented two proposed classes of Arkansas residents who alleged the defendants' fracking activities caused earthquakes (Hearn v. BHP Billiton Petroleum (Arkansas) Inc., E.D. Ark., No. 11-cv-00474, filed 6/9/11; 2010-2011 Guy-Greenbrier Earthquake Swarm Victims v. Chesapeake Operating Inc., Ark. Cir. Ct., No. 23-CV14-84, filed 2/14/14). The plaintiffs moved to voluntarily dismiss those cases before class certification.
“When I first filed the cases in Arkansas, everyone reacted by asking whether there really can be a man-made earthquake,” said Poynter, who also currently represents Oklahoma plaintiffs in a putative class action for a series of 2011 earthquakes allegedly caused by fracking (Cooper v. New Dominion LLC, Okla. Dist. Ct., No. CJ-2015-24, filed 2/10/15).
“But what was helping me in Arkansas was that the oil and gas commission stopped two wells, and so the commission acted very swiftly in shutting down two wells. So there was credence to the general causation argument.”
“What was harder was specific causation and saying that this earthquake caused this damage. Proving that this crack in this house was caused by this earthquake was going to be harder. And it got harder based on the distance that home was to the epicenter of the largest quakes. It also got harder because of the construction of the home, whether it was a standalone home, a mobile home, a manufactured home, for example. The soils were going to come into play, and all of those issues made specific causation hard.”
Pernicone said seismicity is a “big issue” in light of earthquake reports near fracking operations.
Since 2011, more than 20 suits have been filed against companies including BHP Billiton Ltd., Chesapeake Energy Corp., Royal Dutch Shell Plc and Sunoco Logistics Partners LP that allege underground injection activities caused earthquakes in Arkansas and Texas, according to a tally of cases compiled by Bloomberg Intelligence.
Natural resource damage claims stemming from fracking are another type of suit that Allen, of Greenberg Traurig, predicts will arrive at some point.
“States have primary authority to bring suits for natural resource damages. If environmental damages can be tied to fracking, then states could begin filing suits to recover for alleged damage to the natural environment,” Allen said. “I have not seen this sort of lawsuit filed yet in any state, but I know plaintiffs’ counsel have begun marketing this structure to states.”
“While pure environmental damage may be less clear-cut in terms of the injury suffered, it can lend itself to a claim of more widespread injury to the environment, and so prove very threatening for defendants,” he said.
Insurance coverage also comes into play in disputes over fracking, Allen said.
“There will come a point where significant tort suits are being litigated, and insurance coverage will be a significant issue,” he said.
“The question of how insurance might be implicated will depend on how the suit arises—for example as a release arguably removed by the pollution exclusion, or as a sudden event akin to an industrial accident which may trigger coverage. It may be that some insurers have started addressing some of these risks in their policy language.”
“Fracking cases are still in a relative infancy, and there will be much more fracking, and much more litigation to come.”
Pernicone said the insurance industry wants reassurance that oil and gas resources can be safely and responsibly developed. The fracking industry, he said, has “demonstrated that it’s a responsible, good citizen and that it can continue to safely and responsibly develop these resources.”
“In a sense, there’s a symbiotic relationship between the regulatory side of this and the insurance side,” Pernicone said. “The regulators are going to want to make sure that the practitioners that are involved are properly insured. Conversely, for the insurance industry to do that, they're going to need comfort that the industry can be operated safely and responsibly, which of course relates to the regulations.”
Attorneys agree that fracking litigation is just heating up and a long road lies ahead.
“You’re starting to see litigation in places where there wasn’t a ton of litigation before,” Showalter said.
“I’m originally from the northern West Virginia, an area where fracking is very common,” he said. “There’s a ton more civil cases in the Northern District of West Virginia than there used to be just because fracking has come—it’s a fairly massive kind of industrial development.”
“A lot of people who live in fairly out-of-the-way areas are being affected by this industrial development, and that’s a bit of a shocker that’s likely to lead to litigation—and it has.”
“Particularly on the East Coast, it’s massive infrastructure being built fairly quickly and sure, there’s going to be some disputes,” Showalter, with Shiff Hardin, said.
Leone, with Hollingsworth LLP, agrees things are just getting started.
“Fracking cases are still in a relative infancy, and there will be much more fracking, and much more litigation to come,” Leone said.
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New Technology Increases Well Count
Hydraulic fracturing, also known as “hydrofracking” or “fracking,” likely had its beginning in 1866, when Lt. Col. Edward Roberts was awarded a patent for an “exploding torpedo” that was dropped into a water-filled well to extract oil.
Improvements on Roberts’ invention progressed into the 1940s, when “fracturing fluids,” consisting primarily of sand and water, were pumped under high pressure to crack underground rock formations and release natural gas and oil.
The technique proved commercially viable, and the oil industry continued to refine it.
The development of horizontal drilling in the 1990s, however, revolutionized fracking.
Directional drilling allowed extraction of oil and gas deposits in previously inaccessible shale formations, such as the Marcellus Shale Formation that runs from New York State to West Virginia, and that led to the rapid expansion of the practice.
It also has led to disputes over the effect that fracking, which now uses a chemical “cocktail” of fluids, is having on the environment.
A Chemical Cocktail
A chemical “cocktail” is typically employed in hydraulic fracturing to dissolve rock and stabilize the resulting fissures, and the ingredients used may vary according to local geological conditions.
Hydrochloric acid, formic acid, sodium chloride, ethanol and naphthalene are some of the additives typically used in fracking, according to www.fracfocus.org, a national hydraulic fracturing chemical registry operated by the Ground Water Protection Council and the Interstate Oil & Gas Compact Commission.
Ideally, most of the fluids are recovered once the well is operational.
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