October 02, 2018 Feature

Practical Pointers from Practitioners

Federal Court Ruling Holds Pipeline Operators Liable for Damage to Wetlands

A recent Louisiana federal district court ruling in Vintage Assets, Inc. v. Tennessee Gas Pipeline Co., L.L.C., No. CV 16-713, 2017 WL 3601215 (E.D. La. Aug. 22, 2017), has quietly revived the possibility of holding the energy industry accountable for coastal wetland erosion. The timing of the 2017 preliminary ruling in Vintage Assets was unique—it came on the heels of the Fifth Circuit’s dismissal in Bd. of Comm’rs of Se. La. Flood Prot. Auth.-E. v. Tennessee Gas Pipeline Co., L.L.C., 850 F.3d 714, 724 (5th Cir. 2017), of a Louisiana flood protection agency’s lawsuit seeking billions in damages from nearly one hundred oil and gas corporations for alleged damage to coastal wetlands, but it was handed down before the US Supreme Court refused to hear the final appeal of that case (the Levee Board Case). Although Southeast Louisiana residents, local governmental agencies, and environmental groups had reluctantly accepted the outcome of the Levee Board Case as sounding the death knell for any further attempts to restore Louisiana’s coastline through the judicial system, energy companies, politicians, and policy makers praised the ruling for ending another lawsuit that deters out-of-state investment in Louisiana, rendering it unable to compete against its oil-rich and manufacturing-heavy neighbors. Both camps want better for Louisiana—they just can’t agree upon how: Louisiana can’t survive without financial investment, but it won’t be there to reap the benefits if it’s underwater.

As the legal community (on both sides) turned its attention to state suits—viewed now as the only avenue for recourse against the energy industry—many overlooked a recent decision that stands to impose express obligations on the energy industry by indicating that pipeline operators who hold servitudes (easements) over coastal wetlands may have a duty to repair erosion caused by their activities. While the court has yet to issue a final ruling in Vintage Assets, its August 2017 order could set a new precedent with respect to how liability for wetland erosion is allocated. If upheld on appeal, it could offer flood-weary citizens of Southeast Louisiana a new strategy for recourse against the parties whom many consider responsible for the continual flooding of their communities, even after decades of attempts at holding governmental agencies and others accountable have failed. It might also discourage foreign investment in Louisiana, causing further stagnation to its already-fragile economy.

Background: Hurricane Katrina and Governmental Liability

Ever since Hurricane Katrina’s storm surge washed ashore along the Gulf Coast in 2005, the threats posed to coastal communities by global warming, rising sea levels, and ground subsidence have become more evident and undeniable than ever. As subsequent weather events continued to batter the region over the next decade, residents of Southeast Louisiana—arguably the focal point of the disaster—turned to the legal system to assign responsibility for the levee failures that flooded 80% of greater New Orleans and submerged countless square miles of Louisiana’s surrounding coastal parishes. After nearly eight years of legal proceedings before various federal courts (collectively, the Katrina Cases), the final ruling as to liability was handed down in 2013: The United States Army Corps of Engineers was responsible for both the levee failures and navigation channel flooding, but it was immune from liability because of the applicability of several distinct federal laws. See In re Katrina Canal Breaches Consol. Litig., No. CA 10-866, 2013 WL 1562765 (E.D. La. Apr. 12, 2013).

Beyond New Orleans: Coastal Wetlands Erosion

Although it may have been the Corps that was responsible for the flawed levee design and exacerbated flooding caused by its dredging of the Mississippi River Gulf Outlet Canal—both of which contributed to the devastation of metro New Orleans—the coastal parishes lying outside of the levee system that protects New Orleans were rendered susceptible to flooding not only because of engineering failures, but also because of wetland erosion. It has been estimated that Louisiana is home to up to 45% of country’s coastal wetlands, which support various ecosystems, provide recreational benefits, and are directly tied to the local economy: Louisiana seafood accounts for 25 percent of all seafood consumed nationally. But perhaps most importantly, Louisiana’s wetlands have historically acted as a buffer against rising tides by absorbing water and thus protecting inland areas from flooding.

Until the 1970s brought the enactment of the Clean Water Act and related legislation, however, pipeline operators were permitted to dredge canals and levees through these wetlands with steel drills, hydraulic pumps, and reckless abandon, but without caution, regulation, or oversight. Their main objectives were to extract valuable minerals from Louisiana’s wetlands, supply convenient transport between drilling sites and refineries, and provide access to the Mississippi River’s critical shipping routes. As a direct result, however, Louisiana’s wetlands began eroding at an alarming rate. Saltwater inundated the wetlands and killed fortifying vegetation that had held the terrain together. Sediment that had previously flowed down the Mississippi from America’s heartland and built up vital alluvion was instead diverted directly to the Gulf by levees that cordoned off the marshes. The weight of discarded dredged material (“spoil levees”) caused the already-vanishing soil to subside further. All the while, sea levels were rising. Put simply—the land has been sinking while the surrounding water has been rising, and the consequence for Louisiana is the loss of its land at a current rate of a football field per hour.

Initial Attempts at Coastal Erosion Litigation

After the final decision was handed down in the Katrina Cases, a collection of parish (county) governments filed suit against 97 various oil and gas companies, seeking to hold them accountable for wetland damage that would cost billions to repair. See Bd. of Comm’rs of Se. Louisiana Flood Prot. Auth.-E. v. Tennessee Gas Pipeline Co., LLC, 88 F. Supp. 3d 615, 623 (E.D. La. 2015), aff’d sub nom. Bd. of Commissioners of Se. Louisiana Flood Prot. Auth.-E. v. Tennessee Gas Pipeline Co., L.L.C., 850 F.3d 714 (5th Cir. 2017). The suit was viewed as an admirable attempt at holding big business (instead of government) liable for environmental disregard, but the claims it advanced were admittedly unsubstantiated. Politics came into the fold as various lobbies sided with both sides of the suit, filing amicus briefs and hiring experts. Ultimately, both the Eastern District of Louisiana (EDLA) and the Fifth Circuit held that, although the state-law claims were properly heard in federal court because they raised federal jurisdictional issues, the plaintiffs had failed to meet the elements of those claims—only one of which related to the oil company’s obligations under Louisiana’s law of servitudes. After the US Supreme Court denied certiorari, many interpreted the final outcome as a clear signal that litigation would not save Louisiana’s wetlands.

The Vintage Assets Case

Meanwhile, however, preliminary rulings in the Vintage Assets case being heard next door at the EDLA were quietly establishing new precedent. Vintage was brought by private landowners who initially lodged claims for trespass, tort, breach of contract, and negligence against various pipeline operators. Although the court agreed with the defendants that neither trespass or negligence could be proven, its analysis of the plaintiffs’ breach of contract claims was most notable.

The contracts at issue were eight distinct servitudes over the plaintiffs’ land that were granted to the defendants between 1953 and 1970. Of these, six of the servitudes granted rights-of-way (ROWs) of specific maximum widths—either 100 or 175 feet wide—within which were included “the right[s] to lay pipeline[s] in open ditches or canals,” not to exceed 40 or 65 feet in width. There was no dispute that the canals had eroded such that they far exceeded their maximum widths when they were re-surveyed in 2015—some by as much as 160 feet. In fact, the vast majority of the canals exceeded not only the maximum width granted for the canals, but also exceeded the maximum width for the ROWs granted by the servitudes, meaning that the canals had eroded to the point where they illegally encroached onto portions of the plaintiffs’ property to which the defendants had no rights.

Because of this encroachment and erosion, the plaintiffs asserted that the servitudes’ specification of the canals’ maximum widths clearly required the defendants to maintain the canals in a manner that ensured they did not exceed their maximum widths. In response, the defendants contended that because the servitudes’ language permitted the defendants to “leave the canals open,” they could not be construed as imposing any maintenance obligations on the defendants. The most significant analysis of the court’s decision was its consideration of this issue. Citing an earlier-decided Fifth Circuit case with similar facts, the court first reasoned that the servitudes’ references to maximum widths, coupled with their explicit grants of permission to defendants to “leave the canals open” rendered the servitudes ambiguous “as to [d]efendants’ duty to maintain the canals, and indeed, evince[d] a failure to contemplate the effect of erosion.”

After reaching this conclusion as to the servitudes’ language, the court then cited Louisiana Civil Code Article 697, which provides that where a conventional servitude (express easement) does not specify the use and extent of the servitude, such use and extent will be regulated pursuant to the suppletive rules provided for in the comments to the article. Before applying the rules to interpret the servitudes, the court first observed that “whether the suppletive law of Louisiana might impose [a duty to maintain canals] remains to be resolved” and noted that prior courts had declined to address the issue, instead reasoning that such an analysis was fact-intensive and better left to a trial court or jury.

Nevertheless, the court relied upon the analyses of the suppletive rules provided in those prior cases, all of which affirmed that, at the very least, the suppletive rules regarding servitudes provide that ambiguities must be construed in favor of the servient estate (the burdened property) and also “impose a continuing duty [on the owner of the dominant estate] to refrain from injuring or aggravating the condition of the servient estate.” This was apparently sufficient for the court to distinguish its holding from other courts by finally answering the “question of first impression . . . [of] whether the duty to refrain from aggravating the servient estate encompasses a duty to maintain canals and canal banks from eroding the servient estate,” and it did so in the affirmative:

This Court finds that it is self-evident that allowing a canal to widen such that it encroaches on the servient estate or erodes the servient estate into open water constitutes aggravation. Accordingly, pursuant to suppletive law Defendants have a duty to maintain the canals and canal banks to prevent erosion, and therefore aggravation of the servient estate. [Because] [t]here is no dispute that Defendants . . . allowed the canals to widen to widths far exceeding that set forth in the servitude agreements . . . this Court holds that Defendants had a duty to maintain the canals, and that duty was breached.

The court went on to hold that the duty to maintain was continuous under Louisiana law and therefore could not have prescribed (been barred by the statute of limitations) unless the servitude was terminated. Although some have criticized the ruling for disregarding a 2005 Louisiana Supreme Court case holding that the Louisiana mineral code does not impose a duty to restore similar canals, it has nonetheless established a new standard in Louisiana property law and, if upheld on appeal, may provide an alternative avenue to hold the oil and gas interests liable for environmental damages. If required to reverse the wetland erosion caused by dredging activities, such companies could face millions of dollars in restoration costs in Louisiana alone, and if courts in other states are persuaded by the ruling, it could have national implications for the energy industry.

Although the court’s dismissal of plaintiffs’ trespass, tort, and negligence claims reiterated that these previously-attempted theories of liability cannot be relied upon to hold the industry accountable, its decision to adopt a new interpretation of age-old property law may be the key to unlocking a new strategy for those seeking to restore Louisiana’s coastal wetlands. On the other hand, it may indeed deter the energy industry from further investment in the state. Many consider the energy industry the lifeline of the local economy. Until the case is finally decided, however, these implications will remain unclear. Either way, the decision proves that property law principles—no matter how old or well-settled—are always subject to reinterpretation and, in this case, may ultimately determine how the environmental damage to an entire region will be reversed, who will be responsible for its restoration, and, most importantly, whether Louisianans can look forward to a future that is not submerged under the murky waters of the Gulf. n