The Emerging Litigation Strategy of Environmental Organizations Seeking to Curtail Shale Oil and Gas Development

November 2012 (No. 5)

Shale Oil & Gas Development

Opponents of hydraulic fracturing and horizontal drilling activities initially pursued litigation as one might have anticipated. The suits filed first involved allegations of groundwater contamination and toxic tort injury. Typically, common law claims, such as those for nuisance, trespass, negligence, and strict liability, were asserted in those early suits. Occasionally, environmental statutory claims, such as under the federal Air Pollution Prevention and Control Act (the “Clean Air Act”), 42 U.S.C. §§ 7401 to 7671q, surfaced as well. See, e.g., Citizens for Pennsylvania’s Future v. Ultra Resources, Inc., No. 11-cv-1360, 2012 U.S. Dist. LEXIS 136494 (M.D. Pa. Sept. 24, 2012). Some of these cases were resolved through private party settlements, see, e.g., Mitchell v. Encana Oil & Gas (USA), Inc., et al., No. 10-cv-02555 (N.D. Tex. Dec. 15, 2010); others were dismissed (with and without prejudice) because of plaintiffs’ failure to demonstrate a causal link between the alleged injuries on the one hand and hydraulic fracturing and horizontal drilling activities on the other, see, e.g., Strudley v. Antero Resources Corp., et al., No. 11-cv-2218 (Dist. Ct., Denver, CO, May 9, 2012).

In short, by pursuing this strategy, those opposed to shale oil and gas development were finding success in their litigation objectives elusive, as they were gaining almost none of the traction for which they had hoped.

As a result, environmental organizations, opting not to limit their attack strictly to suits of the type noted above, have adopted a more expansive litigation strategy. A parallel track is emerging, and by embarking on this additional path, these activist groups hope to pose a significant threat to continued development and production of unconventional oil and gas reserves in the United States.

For opponents of hydraulic fracturing and horizontal drilling activities, the second prong of attack involves the assertion of claims against federal or state agencies under Acts such as the following: the National Environmental Policy Act (“NEPA”), 42 U.S.C. § 4321, et seq.; the Endangered Species Act (“ESA”), 16 U.S.C. § 1531, et seq.; and California’s Environmental Quality Act (“CEQA”), Cal. Pub. Res. Code § 21000, et seq. This strategy also extends to the filing of administrative petitions with the U.S. Environmental Protection Agency (“EPA”). Industry opponents are fashioning petitions designed to require industry to provide more detailed data with respect to operations, no doubt hoping that if their petitions are successful, the compelled disclosures will facilitate additional litigation.

In California, there has been a fair amount of activity evidencing this new line of attack. The Center for Biological Diversity (the “Center”) recently launched an ESA challenge against the federal agency responsible for managing federal lands and subsurface mineral estates underlying federal, state, and private lands, the U.S. Department of Interior’s (“DOI”) Bureau of Land Management (“BLM”). In pertinent part, ESA requires each federal agency to consult with the U.S. Fish and Wildlife Service (“FWS”) or the National Marine Fisheries Service (“NMFS”) to “insure that any action authorized, funded, or carried out by such agency...is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of [critical] habitat of such species.” 16 U.S.C. § 1536(a)(2).

In its August 29, 2012, letter advising of its intent to commence a citizen suit under ESA at the expiration of sixty days (“Notice”), the Center noted that the California’s Monterey Shale formation is estimated to contain 40 percent of the nation’s total shale oil reserves, or over 13 billion barrels of shale oil. Techniques utilized there now include a “new combination of multi-stage slickwater hydraulic fracturing and horizontal drilling (hereinafter ‘fracking’),” and use of this extraction method is expected to increase significantly, the Center further advised in its Notice.

Although acknowledging that the BLM has issued oil and gas leases and drilling permits in the public lands that overlie the Monterey Shale formation “for decades,” the Center nonetheless now contends ESA has been violated. With the advent of new drilling techniques and of increased drilling activity on public land in California, BLM failed to conduct proper evaluation of the threat to ESA-listed species, and instead relied on “outdated biological opinions,” the Center argues. In its Notice, the Center demands BLM reinitiate endangered species act consultation regarding oil and gas leasing and drilling activities in California, and that all such activities cease.

Additionally, the Center and the Sierra Club have an existing suit pending against the BLM and the Secretary of the DOI in the Northern District of California. Center for Biological Diversity, et al. v. Bureau of Land Management, et al., No. 11-06174 (N.D. Cal. filed Dec. 8, 2011). At issue in this particular federal litigation is an alleged September 2011 oil and gas lease sale of approximately 2,700 acres located in Monterey and Fresno counties, California. Plaintiffs contend that designated watershed areas and habitat for threatened and endangered species are at issue. Further, they argue that BLM’s decision to lease allegedly sensitive lands for oil and gas development must be overturned because it allegedly occurred without a full, thorough and sufficient examination of the effects drilling there would have on California’s landscapes, wildlife, watersheds and air quality.

In this action, the plaintiffs claim the defendants violated NEPA and other Acts. NEPA is a procedural statute that, in pertinent part, requires a federal agency to prepare an environmental impact statement (“EIS”) as part of any “major Federal actions significantly affecting the quality of the human environment.” 42 U.S.C. § 4332(2)(C). An agency must prepare an EIS for any action that has “individually insignificant but cumulatively significant impacts.” 40 C.F.R. § 1508.27(b)(7). In January 2013, the court is scheduled to hear the parties’ pending summary judgment motions.

Recently, the Center, and others, obtained success in the Ninth Circuit Court of Appeals in challenges to various determinations of the BLM, the FWS and the Army Corps of Engineers concerning the Ruby Pipeline Project. On October 22, 2012, that federal appellate court issued its decisions in the petitioners’ favor. See Center for Biological Diversity v. U.S. Bureau of Land Mgmt., 2012 U.S. App. LEXIS 22016 & 2012 U.S. App. LEXIS 22088 (9th Cir. Oct. 22, 2012). The Ruby Pipeline Project concerned a natural gas pipeline traversing more than 678 miles, extending from Wyoming to Oregon. The right-of-way for the pipeline encompassed approximately 2,291 acres of federal lands and crossed numerous rivers and streams supporting threatened and endangered species. In the FWS’s biological opinion, that federal agency advised that the project “would adversely affect” nine of those species and five designated critical habitats. FWS nonetheless determined that the project “would not jeopardize these species or adversely modify their critical habitat.”

The Ninth Circuit Court of Appeals concluded that, under ESA, the FWS’s biological opinion had to be set aside as arbitrary and capricious for two reasons: first, its “no jeopardy” and “no adverse modification” determinations relied on protective measures set forth in a conservation plan unenforceable under the ESA; and second, it did not take into account the potential impacts of withdrawing approximately 338 million gallons of groundwater from numerous wells along the pipeline. Because the BLM had relied on the FWS’s biological opinion in its Record of Decision (“ROD”), the court set aside the BLM’s ROD as well.

Another of the petitioners’ challenges succeeded, too. By the time of the circuit court’s review, the pipeline was completed. The federal appellate court nonetheless determined a violation of NEPA had occurred and that “[a]n appropriate FEIS [Final Environmental Impact Statement] could still yield effective postconstruction relief in the form of mitigation.” With regard to the cumulative impact analysis that must comport with NEPA, the court found that little quantitative, specific information was provided in the FEIS, other than that the project was projected to destroy more than 9000 acres of sagebrush steppe vegetation and habitat. Because “the FEIS does not provide sufficient ‘quantified or detailed data,’...about the cumulative loss of sagebrush steppe vegetation and habitat,” the court remanded the matter to the BLM to undertake a revised cumulative effects analysis.

On October 16, 2012, Earthjustice, on behalf of the Center, the Sierra Club, and two other environmental advocacy groups, initiated state court litigation against the California Department of Conservation, Division of Oil, Gas and Geothermal Resources (“DOGGR”), the state agency regulating oil and gas activities in California. Center for Biological Diversity, et al., v. California Dep’t of Conservation, Case No. RG12652054 (Cal. Super. Ct., Alameda Co, filed Oct.16, 2012). Although admitting in their complaint that “[h]ydraulic fracturing (or ‘fracking’) was first developed in the early 20th century and has been used in California as far back as the 1950s,” the plaintiffs contend that DOGGR never formally evaluated the practice and has been derelict with respect to its various statutory responsibilities under CEQA, California’s state analog to NEPA. Their lawsuit seeks, among other things, a declaration from the court that DOGGR is in violation of CEQA for failing to consider, evaluate, and mitigate the environmental and public health impacts of fracking when approving oil and gas well permits.

The other aspect of industry opponents’ emerging strategy is the filing of petitions in order to prompt greater regulation, to delay or curtail oil and gas development, and/or to facilitate additional litigation. For example, on August 4, 2011, Earthjustice and other advocates filed a citizens’ petition with the EPA under the Toxic Substances Control Act (“TSCA”), 15 U.S.C. § 2601, et seq. Agreeing that “there is value in initiating a proposed rulemaking process using TSCA authorities to obtain data on chemical substances and mixtures used in hydraulic fracturing,” the EPA partially granted the petition on November 23, 2011. Having invoked TSCA authorities, EPA will draft regulations requiring industry to disclose details about the chemicals used in hydraulic fracturing and to submit existing health and safety studies related to those chemicals. These disclosure regulations, if enacted, will be burdensome; but it is the use of the information disclosed to the EPA in conformity with any such regulations that is potentially more problematic. Industry members’ compelled disclosures will be used by environmental organizations, citizens groups and activists to advance litigation objectives.

Additionally, the Sierra Club and more than a dozen other advocacy groups joined the Environmental Integrity Project in the filing of a petition with the EPA on October 24, 2012. Certain industrial sectors are required to report, on an annual basis, their releases of toxic chemicals to the Toxics Release Inventory (“TRI”) of the Emergency Planning and Community Right-to-Know Act (“EPCRA”), 42 U.S.C. § 11001, et seq. The petitioners seek to compel the addition of the “oil and gas extraction industry” to the list of facilities required to report to the TRI. The petitioners acknowledge that fifteen years ago, the EPA elected not to do so. Notwithstanding the EPA’s prior determination not to subject this industry to EPCRA’s reporting requirement, the petitioners demand the imposition of this obligation on those businesses involved in “exploration and well development, production and processing, and site abandonment.” Again, any such obligation is more than merely burdensome; it presents a threat to industry. Because the information reported to the TRI is publicly accessible, those disclosures will fuel additional litigation - by environmental activists and others - against industry participants.

As concerns hydraulic fracturing and horizontal drilling activities, the environmental activists are casting a wider net. To delay and impede further development of unconventional oil and gas reserves, these advocacy groups are coordinating their efforts; additionally, the attacks they are launching on the shale oil and gas industry are no longer limited to those which are customary or expected. Unconventional litigation and avenues are now pursued as well. Evidence of the emergence of this new strategy is found in environmental organizations’ recent filings in court - particularly in California - and with the EPA. Their latest efforts, in litigation and in administrative petitions, render this developing story one industry participants must follow.

Notice: The purpose of this Alert is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This Alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

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