Florida Gas Transmission Company, LLC v. Texas Brine Company, LLC

Opinion

STATE OF LOUISIANA

COURT OF APPEAL

FIRST CIRCUIT

NO. 2018 CA 0907

FLORIDA GAS TRANSMISSION COMPANY, LLC

VERSUS

TEXAS BRINE COMPANY, LLC, ET AL.

Judgment Rendered: " AUG .2 9 2015,

On Appeal from The 23rd Judicial District Court, Parish of Assumption, State of Louisiana Trial Court No. 34316 The Honorable Thomas J. Kliebert Jr., Judge Presiding

Leopold Z. Sher Attorneys for Appellant/ Defendant, James M. Garner Texas Brine Company, LLC Peter L. Hilbert Jr.

Jeffrey D. Kessler New Orleans, Louisiana

Robert Ryland Percy III Gonzales, Louisiana

Travis J. Turner Gonzales, Louisiana

Glen E. Mercer Attorneys for Appellee/ Third-Party Kourtney Twenhafel Defendant, New Orleans, Louisiana Steadfast Insurance Company

Mary S. Johnson Attorneys for Appellees/ Third-Party Chad J. Mollere Defendants, Mandeville, Louisiana AIG Specialty Insurance Company, Lexington Insurance Company, and National Union Fire Insurance Company of Pittsburgh, PA.

BEFORE: McDONALD, CRAIN, AND LANIER, JJ. CRAIN, J.

Texas Brine Company, LLC, appeals a judgment dismissing its claims

against Steadfast Insurance Company, AIG Specialty Insurance Company,

Lexington Insurance Company, and National Union Fire Insurance Company of

Pittsburgh, PA., in their respective capacities as insurers of Adams Resources

Exploration Company ( collectively " insurers"). We affirm.

FACTS AND PROCEDURAL HISTORY

This is one of several lawsuits arising out of a sinkhole in Assumption

Parish that developed on or about August 3, 2012, following the collapse of the

Oxy- Geismer # 3 ( OG3), a pressurized salt cavern in the Napoleonville Salt Dome.

The OG3 was drilled by Texas Brine in 1982 on property owned by Occidental

Chemical Corporation, then known as Hooker Chemical Corporation. Texas Brine

operated the OG3 until 2011, when the cavern was plugged and abandoned.

Occidental owned an adjacent piece of property that was subject to an oil

and gas lease granted to Colorado Crude ( Colorado Crude lease). In 1986, Adams

Resources, an assignee of the Colorado Crude lease, drilled an oil and gas well on

that property, the Adams -Hooker No. 1 ( AHI well). Before it was drilled, Texas

Brine approved the surface and bottom hole locations for the AHI well. When

completed, the well did not penetrate or otherwise contact the Napoleonville Salt

Dome or the OG3 cavern. In May 1986, before any actual production from the

AHI reservoir, Adams Resources assigned its operating interest in the AHI well to

HECI Exploration Company, LLC. The well produced until it was permanently

shut- in in 2001, approximately 11 years before the development of the sinkhole.

After the sinkhole appeared, Florida Gas Transmission Company sued Texas

Brine, among other defendants, alleging Texas Brine' s operation of the OG3

caused the collapse of the cavern and the resulting sinkhole, which damaged two of

Florida Gas' s pipelines. Texas Brine filed incidental demands against several

2 parties associated with the AM well, including Adams Resources and its insurers,

alleging the drilling and operation of the well decreased the pressure in the AM

reservoir, which purportedly damaged the adjacent salt dome wall, " encouraged"

the leakage of brine from the OG3 cavern, and ultimately contributed to the

collapse of the cavern and formation of the sinkhole. Asserting tort and contract

claims, Texas Brine cited the following provision in the Colorado Crude lease:

Lessee shall diligently endeavor not to damage any salt formations which may

exist upon the leased premises and shall pay for any actual damages which may

occur from operations upon said premises."

The litigation proceeded to a " Phase 1: Liability" trial limited to the

following issues: ( 1) the duties owed by the non -insurer parties, ( 2) whether any

non -insurer parties breached the duty or duties owed, and ( 3) if one or more non -

insurer parties breached a duty or duties, whether the actions or inactions of that

party caused any legally cognizable damages to any claimant! After Texas Brine

rested its case, Adams Resources' insurers moved for an involuntary dismissal of

Texas Brine' s claims. The trial court deferred ruling on the motion until the

completion of the trial, at which time the motion was re -urged and granted by the

trial court. In a judgment signed on November 11, 2017, the trial court dismissed

Texas Brine' s claims against Adams Resources' insurers with prejudice. Texas

Brine appeals.

DISCUSSION

In an action tried by the court without a jury, any party may move for

involuntary dismissal at the close of the plaintiff' s case on the ground that upon the

facts and law, the plaintiff has shown no right to relief. See La. Code Civ. Pro. art.

1 Adams Resources filed bankruptcy in 2017 and did not participate in the trial. See In re Adams Resources Exploration Corporation, 17- 10866, 2017WL5479425 ( Bankr. D. Del. 5124117).The bankruptcy stay was lifted to allow the claims against Adams Resources' insurers, which were not released by the bankruptcy, to proceed. See La. R.S. 22: 1269A and B. 91 1672B.2 The trial court may then determine the facts and render judgment against

the plaintiff and in favor of the moving party or may decline to render any

judgment until the close of all the evidence. Id. Unlike a motion for directed

verdict in a jury trial, a motion for involuntary dismissal requires a judge to weigh

and evaluate the evidence up to that point, without any special inferences in favor

of the opponent to the motion, and ascertain whether the plaintiff has presented

sufficient evidence to establish his claim by a preponderance of the evidence. See

Taylor v. Tommie' s Gaming, 04- 2254 ( La. 5/ 24/ 05), 902 So. 2d 380, 384; Kennedy

v. Louisiana Maintenance Specialties, Inc., 07- 0506, 2007WL4555444, p. 3 ( La.

App. I Cir. 12/ 28/ 07); Ross v. Premier Imports, 96- 2577 ( La. App. I Cir. 11/ 7/ 97),

704 So. 2d 17, 20, writ denied, 97- 3035 ( La. 2/ 13/ 98), 709 So. 2d 750. However,

absent circumstances in the record casting suspicion on the reliability of the

testimony and sound reasons for its rejection, uncontroverted evidence should be

taken as true to establish a fact for which it is offered. Kennedy, 2007WL4555444

at p. 3; Ross, 704 So. 2d at 20.

The trial court' s grant of an involuntary dismissal is subject to the manifest

error standard of review. Pontchartrain Natural Gas System v. Texas Brine

Company, LLC, 18- 0631 ( La. App. 1 Cir. 7/ 3/ 19), So. 3d — 1

2019VY'L2865136, p. 3); Broussard v. Voorhies, 06- 2306 ( La. App. I Cir.

9/ 19/ 07), 970 So. 2d 1038, 1041, writ denied, 07- 2052 ( La. 12/ 14/ 07), 970 So. 2d

535. To reverse, the reviewing court must find the trial court' s finding has no

reasonable factual basis and is clearly wrong. See Pontchartrain Natural Gas,

So. 3d at ( 2019WL2965136, p. 3); Broussard, 970 So. 2d at 1042; see

also Haves Fundfor First United Methodist Church of Welsh, LLC v. Kerr-McGee

Rocky Mountain, LLC, 14- 2592 ( La. 12/ 8/ 15), 193 So. 3d 1110, 1116. The issue to

2 The word " plaintiff' in Louisiana Code of Civil Procedure article 1672B includes a plaintiff in an incidental demand. See La. Code Civ. Pro. art. 1040.

E be resolved on review is not whether the factfinder was right or wrong, but whether

the factfinder' s conclusion was a reasonable one. Hayes, 193 So. 3d at 1116;

Greene v. Succession ofAlvarado, 15- 1960 ( La. App. 1 Cir. 12/ 27/ 16), 210 So. 3d

321, 333.

Texas Brine contends the record does not reasonably support the trial court' s

conclusion that Adams Resources is not liable to Texas Brine. According to Texas

Brine, the evidence established Adams Resources was partly responsible for the

depressurization of the AHI reservoir, which weakened the salt dome wall,

encouraged" the leakage of brine from the OG3 cavern, and ultimately

contributed to the collapse of the OG3 cavern and the appearance of the sinkhole.

Texas Brine does not dispute that Adams Resources never operated the AHI well

when it was actually producing from the AH1 reservoir. Nevertheless, Texas

Brine contends Adams Resources' " erroneous assumption" that the reservoir was

water driven, rather than depletion driven, was a contributing factor to the

sinkhole. In a water driven reservoir, the internal pressure in the reservoir is

maintained by water expanding in the aquifer as hydrocarbons are removed from

the reservoir. In a depletion driven reservoir, the reservoir' s pressure will decline

as hydrocarbons are removed.

The insurers counter that Adams Resources had no obligation, contractual or

otherwise, to determine whether the AHI reservoir was water driven or depletion

driven. The Colorado Crude lease makes no mention of the reservoir' s drive

mechanism and does not expressly require any monitoring of bottom -hole

pressures. Adams Resources also relies on testimony of Michael Veazey, Texas

Brine' s petroleum engineering expert, who testified that Adams Resources' belief,

when the well was drilled, that the reservoir was water driven " was a reasonable

assumption" at the time. The drive mechanism of the reservoir, according to

Veazey, was determinable only by additional measurements and calculations " in

5 the early ` 90' s," which was years after Adams Resources ended its operation of the

well. Veazey confirmed that no industry standard requires well operators to

conduct bottom -hole pressure measurements at any specific intervals. As to the

depletion of the AHI reservoir, the insurers point out Adams Resources was not

the operator of the well during production from the reservoir. The insurers also

rely on the trial court' s involuntary dismissal of the claims against Browning Oil

Company, Inc., a long-term operator of the well, as a rejection of any assertion the

well should have been re -pressurized.

In its reply brief, Texas Brine emphasizes its claim against Adams

Resources under the Colorado Crude lease, arguing Adams Resources had an

obligation therein " not to damage any salt formation" and "[ to] pay for any actual

damages which may occur from operations upon said leased premises."

Establishing a breach of those contractual obligations, Texas Brine argues, does

not require evidence of conduct falling below a reasonable standard of care or a

violation of an industry standard. Rather, according to Texas Brine, Adams

Resources is contractually liable because it " fail[ ed] to take any steps to detect or

correct its erroneous assumption regarding the reservoir," which " led to the

depressurization of the AHI reservoir [ and] created a pressure differential that

damaged the salt formations." ( Emphasis omitted.)

Regardless of whether its claims are based in tort or contract, Texas Brine' s

evidentiary burden at trial required proof by a preponderance of the evidence that

Adams Resources' actions or inactions caused damage to Texas Brine. See La.

Civ. Code. art. 1994; Hayes, 193 So. 3d at 1115. Causation is an essential element

of both contract and tort claims. Id. Whether a defendant' s actions caused the

plaintiff' s damages is a question of fact, which should not be reversed on appeal

absent manifest error. Hayes, 193 So. 3d at 1115.

X For causation, Texas Brine maintains Adams Resources' " erroneous

assumption" the reservoir was water driven " initiated a chain of events that lead to

the depressurization of the AHI reservoir." Texas Brine elaborates:

But for Adams' erroneous assumption that the AM reservoir was water driven and its failure to detect and correct this error, the depressurization of the AM reservoir could have been prevented and the sinkhole would not have occurred.

Texas Brine relies on testimony from two of its experts, Robert Thorns, an

expert in the behavior of salt, the stability of salt caverns, and the formation of

sinkholes; and Dr. Neal Nagel, an expert in geomechanics. However, their

testimony did not address what effect, if any, Adams Resources' initial

determination of the reservoir' s drive mechanism had on operational decisions for

the AHI well and reservoir. Rather, their testimony focused on the theory that the

sinkhole formed when brine leaked from the OG3 cavern and migrated into the

lower -pressured AHI reservoir. Neither witness suggested the depressurization of

the AHI reservoir was caused by Adams Resources' initial belief the reservoir was

water driven. In other words, neither witness opined that subsequent operators, if

informed the AM reservoir was depletion driven rather that water driven, would or

should have re -pressurized the reservoir or otherwise attempted to maintain its

pressure during production. The evidence indicates the opposite conclusion.

The depressurization of an oil and gas reservoir near a salt dome is not

uncommon. No state regulation requires pressure maintenance in a depleted

reservoir. In his 50 -year career, Veazey had never recommended or performed a

pressure maintenance operation of a reservoir for the purpose of protecting a brine

salt cavern. Further, while Adams Resources initially believed the AHI well was

water driven, tests of the bottom hole pressure in 1986, 1999, and 2000 indicated

the reservoir was depletion driven. At that point, the drive mechanism was known,

but that information did not prompt any change in the well operation to re -

7 pressurize the reservoir. The record offers no support for Texas Brine' s assertion

that the depressurization of the AHI reservoir would not have occurred " but for"

Adams Resources' initial characterization of the reservoir as water driven. That

determination, even when later revealed to be incorrect, had no apparent effect on

operational decisions regarding pressure maintenance in the reservoir.

We further note that another panel of this court recently affirmed the trial

court' s involuntary dismissal of Texas Brine' s claims against Browning Oil. See

Pontchartrain Natural Gas System, So. 3d at ( 2019WL2865136, p. 6).

There, Texas Brine similarly argued the depressurization of the AHI reservoir by

production from the AHI well contributed to the collapse of the OG3 cavern and

the formation of the sinkhole. Pontchartrain Natural Gas System, So. 3d at

2019WL2865136, p. 5). Finding no manifest error in the trial court' s

dismissal of the claims against Browning Oil, the Pontchartrain court concluded,

Our review of the totality of the evidence presented at trial reveals that

Browning' s operations played absolutely no role in any of the causative factors for

the development of the sinkhole and the damage that resulted." Id.

For similar reasons, we likewise find the present record reasonably supports

the conclusion Adams Resources' operations were not a causative factor for the

development of the sinkhole and the resulting damages. See Hayes, 193 So. 3d at

1149- 50; Pontchartrain Natural Gas System, So. 3d at

2019WL2865136, pp. 5- 6). The trial court' s involuntary dismissal of Texas

Brine' s claims against the insurers of Adams Resources is not manifestly

erroneous. This assignment of error is without merit.'

CONCLUSION

3 Texas Brine also assigns as error the trial court' s dismissal of Texas Brine' s claims against the insurers of Adams Resources based on Louisiana law in effect before 1996. For the reasons provided in Pontchartrain Natural Gas System, _ So. 3d at ( 2019WL2865136, p. 5), this assignment of error is without merit. The judgment signed on November 11, 2017, dismissing Texas Brine' s

claims against the insurers of Adams Resources is affirmed. All costs of this

appeal are assessed to Texas Brine.

AFFIRMED.4

4 Texas Brine filed a motion to cite the appellate record in 2018 CA 0842, which we grant. Occidental filed a motion to consolidate this appeal with eight other appeals arising out of the liability trial. As to this appeal, that motion is denied. 6