August 30, 2018

Sleeper Facilities and Oil Pollution Act Liability

Sean M. Sullivan

Today, most oil production in the United States occurs in Alaska, Texas, North Dakota, Montana, California, and the Gulf of Mexico. This wasn’t always the case, though. Oil production in Pennsylvania predates the Revolutionary War. From the beginning of the Civil War until the early 20th century, Ohio, Kentucky, Western New York, and the area that became West Virginia all produced large quantities of oil. The first well in Colorado dates from 1862. Production began in Kansas, Oklahoma, Arkansas, Northern Louisiana, East Texas, Alaska, and California during latter parts of the 19th century. As a result, there are a number of abandoned facilities in these states. Not all of them are known, even to the parties who own the land where they are located, and many of them were closed using methods that––with the benefit of hindsight––one might question.

Under the Oil Pollution Act of 1990 (OPA 90 or the Act), 33 U.S.C. § 2701, et seq., liability for releases of oil to navigable waters (defined as waters of the United States) from these “sleeper facilities” accrues to the “responsible party” (RP) as defined in 33 U.S.C. § 2701(32). On first reading of that provision, one might think that section 2701(32)(F), regarding facilities where “abandonment” has occurred, should provide a straightforward answer. Unfortunately, that is not usually the case. This article highlights some of the complexities of identifying the RP for sleeper facilities and aspires to provide an alternative to asserting the Act’s limited third-party defense. Instead, it offers a potential real property law-based road map for unsuspecting landowners who find themselves having to deal with a release from such a facility.

Congress enacted OPA 90 in the wake of the Exxon Valdez spill. One of the Act’s primary purposes was to establish a liability scheme similar to the Superfund statute that made the parties responsible for an oil spill liable for the costs of cleaning up the spill itself and the ensuing economic and natural resource damages. It imposes liability not only for releases of oil from vessels and offshore oil platforms, but for any release of oil to a water of the United States from one of the covered classes of facilities (onshore, offshore, vessels, pipelines, deepwater ports and abandoned facilities). As such, RPs can incur liability for releases into inland surface waters and—depending on the jurisdiction—might face liability for certain releases to groundwater as well.

OPA 90 established several categories of RPs who can be liable for releases to navigable waters. For vessels, an RP means any person owning, operating or demise chartering the vessel, including any person who owns oil transported in most single-hulled vessels after 2010. With respect to onshore oil facilities (other than pipelines), an RP is any person owning or operating the facility, except for a governmental entity that owns the facility and subsequently transfers possession and operation to another person. For offshore facilities (other than pipelines or licensed deepwater ports), RP means the lessee or permittee of the area in which the facility is located (deepwater ports are controlled by 33 U.S.C. §§ 1501–1524). As to pipelines, RP means any person owning or operating the pipeline. Finally, for abandoned facilities or vessels, an RP is the person who would have been the responsible party immediately prior to the abandonment.

Several cases have considered the question of whether these categories are mutually exclusive in situations where a facility has been abandoned. In other words, in the case of an abandoned, onshore facility, is liability for a release under OPA 90 limited to the party that would have been the RP immediately before abandonment occurred? Or is the current owner of the facility or vessel also an RP, even though the onshore facility has been abandoned? While no court of appeals has weighed in on this issue, several federal district courts have done so.

The leading case is United States v. Bois d’Arc Operating Group. In that case, the federal district court for the Eastern District of Louisiana concluded that OPA 90 intended to cast a broad net regarding liability for releases and that the Act’s goals were best served by subjecting both the current owner of an abandoned facility, as well as the RP for the facility immediately prior to the abandonment, to liability. 1999 U.S. Dist. LEXIS 3199 at *9–12 (E.D. La. Mar. 10, 1999). Federal district courts for the District of Columbia, the Western District of Louisiana, and another court from the Eastern District of Louisiana have reached similar conclusions. See Smith Property Holdings, 4411 Conn. L.L.C. v. United States, 311 F. Supp. 2d 69 (D.D.C. 2004); United States v. Louisiana Land & Exploration Co., 2006 U.S. Dist. LEXIS 11453 (E.D. La. Mar. 17, 2006); and United States v. Burlington Resources Oil & Gas Co., 2007 U.S. Dist. LEXIS 17184 (W.D. La. Mar. 9, 2007). However, at least one court (from the Eastern District of Kentucky) reached the opposite result. See Smith v. Mid-Valley Pipeline Co., 2007 U.S. Dist. LEXIS 33179 (E.D. Ky. Mar. 4, 2007) (limiting analysis to whether defendant was current owner or operator of pipeline at issue).

The net effect of these decisions is that, in cost recovery actions regarding sleeper facilities, the Coast Guard, which has responsibility for all cost recovery actions under OPA 90—including recovery of costs incurred by the U.S. Environmental Protection Agency for inland releases––likely will seek reimbursement and damages not only from the owner or operator of the facility immediately before it was abandoned, but from the current owner of the abandoned facility as well. And therein lies the difficulty. OPA 90 provides no real guidance as to how to determine who currently “owns” an abandoned onshore facility. As a result, federal courts have been forced to look to state law to determine ownership. See United States v. Viking Resources, Inc., 607 F. Supp. 2d 808, 819–21 (S. D. Tex. 2009).

In cases where the owner of real property installed the now-abandoned onshore facility, the analysis is fairly simple. The facility likely will have the appearance of being permanently attached to the land, and in the absence of a recorded agreement in the chain of title to the contrary, title to the facility likely will pass with title to the real property itself. Simply put, the onshore facility would be a fixture.

However, it is very common for ownership of the land surface to be severed from ownership of the right to remove subsurface minerals. In most cases, the deed or other agreement conveying mineral rights to another party will be recorded in the chain of title, and that deed or agreement (hopefully) will describe the ability of the mineral interest owner to use the surface of the land to extract subsurface minerals. For more recent mineral interest conveyances, the recorded deed or agreement may address the mineral interest holder’s ownership of, and responsibility for, structures it installs at the property. Thus, the mineral interest conveyance might state explicitly who has responsibility for a sleeper facility, or it might simply state that any structures installed by the mineral interest owner remain that person’s personal property. For older conveyances of mineral interests, the parties may have to argue by analogy, using the surface rights given to the mineral interest owner or the treatment of other issues in the agreement as evidence of the parties’ intentions. The key point to remember, though, is that courts are inclined to give effect to those intentions––as expressed in the recorded instrument––and those intentions likely will determine who owns a sleeper facility.

In addition, some states have enacted statutes that create a procedure for the landowner to force another party to either remove improvements it made to the land or forfeit them. See La. Civ. Code art. 493. Others have created a process for real property owners to extinguish historic mineral interest claims. See N.C. Gen. Stat. § 1-42.9. The question of whether a landowner should avail itself of these types of procedures will be a fact-specific decision, and it may be better not to do so. Indeed, in the Louisiana Land & Exploration case, it was the existence of Louisiana’s article 493 procedure, and the fact that the landowner did not use it, that allowed the court to conclude the ownership of tanks and piping at an abandoned onshore facility remained with the mineral rights owner. 2006 U.S. Dist. LEXIS 11453 at *17.

Here is the bottom line: If a release from a sleeper facility occurs, landowners should expect the Coast Guard to aggressively pursue reimbursement of response costs and claims for damages. OPA 90’s third-party defense can be fact-intensive and time consuming to assert. A real property law-based approach can provide an effective, simpler alternative. Do not be surprised if you hear a simple, logical-sounding response that, when the sleeper facility was abandoned, title to it simply reverted to the landowner. The key to rebutting such a response lies in knowing that federal courts commonly look to state real property law to identify the current owner of these facilities.

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    Sean M. Sullivan

    Mr. Sullivan is a partner in the Raleigh, North Carolina, office of Troutman Sanders. He may be reached at sean.sullivan@troutman.com.