Railroad Commission of Texas v. Apache Corporation

• Court: Court of Appeals of Texas
• Decided: February 21, 2023
• Docket: 07-22-00014-CV
• Status: Published

Opinion

In The Court of Appeals Seventh District of Texas at Amarillo

No. 07-22-00014-CV

RAILROAD COMMISSION OF TEXAS, APPELLANT

V.

APACHE CORPORATION, APPELLEE

On Appeal from the 200th District Court Travis County, Texas1 Trial Court No. D-1-GN-20-001422, Catherine A. Mauzy, Presiding

February 21, 2023 MEMORANDUM OPINION Before QUINN, C.J., and PARKER and DOSS, JJ.

After Boykin Energy LLC applied to the Texas Railroad Commission for two

permits to dispose of oil and gas waste by injection into certain porous formations not

productive of oil and gas, Apache Corporation filed protests to the applications. After

review, the Commission granted Boykin’s motion to dismiss Apache’s protest for lack of

1 Pursuant to the Texas Supreme Court’s docket equalization efforts, this case was transferred to this Court from the Third Court of Appeals. See TEX. GOV’T CODE ANN. § 73.001. In the event of any conflict, we apply the transferor court’s case law. TEX. R. APP. P. 41.3. standing. Apache sought judicial review of the Commission’s order. The district court

reversed the Commission’s order. The Commission then filed the instant appeal of the

trial court’s ruling. We reverse the district court’s judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In 2018, Boykin Energy filed two permit applications with the Commission seeking

authority to inject oil and gas waste into a formation not productive of oil and gas on the

Landmark SWD Lease in the Phantom (Wolfcamp) Field in Reeves, Texas. As required,

Boykin notified area operators of its applications for disposal wells. The Commission

determined Boykin’s applications to be administratively complete in December of 2018.

Apache protested the applications as an “affected person” in August of 2018.

While Apache does not own the surface of the property where the disposal wells would

be located or within one-half mile of those wells, it does have a leasehold interest

approximately two miles and an active well approximately three miles from the proposed

wells. Apache claims it is an affected person because its operations rely on groundwater

from the Rustler Aquifer and the proposed wells would contaminate this aquifer. Apache

also contends that the wells would endanger or injure its oil and gas interests located in

the Wolfcamp Formation. Boykin responded by filing a motion to dismiss Apache’s

protest in April of 2019. The Commission carried the motion to dismiss and held a hearing

on the merits at which Apache was heard.

Following this hearing, the Commission’s technical examiner and administrative

law judge issued their proposal for decision which concluded that Apache is an affected

person and, therefore, Boykin’s motion to dismiss should be denied. After the

2 Commission subsequently reviewed the evidence, it issued its final order in December of

2019 concluding that Apache is not an affected person and Boykin’s motion to dismiss

Apache’s protest should be granted. Apache timely filed a motion for rehearing, which

was denied by the Commission. Apache sought judicial review of the Commission’s

ruling.

The parties briefed their arguments on the merits for the district court. The trial

court heard arguments via Zoom teleconference. After the hearing, at which the entire

administrative record was admitted into evidence, the trial court entered a final judgment

reversing the Commission’s order. The trial court stated in its judgment that the

Commission erred in granting Boykin’s motion to dismiss because Apache had

demonstrated that it is an affected person. The Commission filed a motion for new trial,

which was denied by operation of law. The Commission then timely appealed.

By its appeal, the Commission presents one issue. That issue contends that the

Commission’s determination that Apache is not an “affected person” is supported by

substantial evidence and, as such, the trial court erred in reversing its decision.

LAW

The Injection Well Act authorizes the Commission to process and issue permits for

the drilling and use of subsurface injection wells to dispose of oil and gas waste. See

TEX. WATER CODE ANN. §§ 27.001–.105. Operators may apply for permits from the

Commission to dispose of oil and gas waste by injecting it into non-producing zones and

formations already containing water unfit for domestic and other uses. 16 TEX. ADMIN.

CODE § 3.9(1) (Disposal Wells); TEX. WATER CODE ANN. § 27.031. “[A] person who has

3 suffered or will suffer actual injury or economic damage other than as a member of the

general public or as a competitor” is an “affected person”2 and has standing to challenge

an application for a disposal well. 16 TEX. ADMIN. CODE § 3.9(5)(E)(ii). “As defined in the

rule, ‘affected persons’ are not absolutely limited to certain classes of persons, but the

definition contains an express exclusion—the person must suffer actual injury or

economic damage other than as a member of the general public or as a competitor.” NGL

Water Sols. Eagle Ford, LLC v. R.R. Comm’n, No. 03-17-00808-CV, 2019 Tex. App.

LEXIS 10302, at *21 (Tex. App.—Austin Nov. 27, 2019, no pet.) (mem. op.). If an affected

person submits a protest or if the Commission determines it to be in the public interest, a

contested-case hearing will be held on the application. 16 TEX. ADMIN. CODE

§ 3.9(5)(E)(i). If the Commission denies the protest, the protestor may seek judicial

review. TEX. GOV’T CODE ANN. § 2001.171.

Judicial review of a Commission decision is conducted under the substantial

evidence standard. TEX. UTIL. CODE ANN. § 105.001(a); R.R. Comm’n of Tex. v. Tex.

Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011). Under the

substantial evidence standard, we review the evidence as a whole to determine whether

it would allow reasonable minds to reach the same conclusion that the agency reached.

Citizens Against Landfill Location v. Tex. Comm’n on Env’t Quality, 169 S.W.3d 258, 264

(Tex. App.—Austin 2005, pet. denied) (hereinafter referred to as “CALL”). We may not

substitute our judgment for that of the agency and may only consider the record on which

2 The definition also expressly includes “surface owners of property on which the well is located and commission-designated operators of wells located within one-half mile of the proposed disposal well.” It is undisputed that Apache does not own property on which the proposed Boykin wells are located nor does it operate any well within one-half mile of the proposed wells.

4 the agency based its decision. Id. We are not tasked with determining whether the

agency reached the correct decision but, rather, whether there is some basis in the record

for its action. Id. While substantial evidence is more than a mere scintilla, the evidence

in the record may actually preponderate against the agency’s decision and nonetheless

amount to substantial evidence. Id. We presume that the agency’s findings, inferences,

conclusions, and decisions are supported by substantial evidence and the burden to

prove otherwise is on the party challenging the agency’s decision. Id. The agency’s

decision should only be reversed if the party challenging the decision demonstrates that

the absence of substantial evidence has prejudiced the party’s substantial rights. Id.

In addition to the traditional substantial evidence standard, an agency decision

shall be reversed if it is in violation of a constitutional or statutory provision, is affected by

other error of law, or is arbitrary and capricious. TEX. GOV’T CODE ANN. § 2001.174(2)(A),

(D)–(F). As above, however, these bases for reversal of an agency decision still require

the challenging party to demonstrate that the agency decision has prejudiced its

substantial rights. Id. Courts have determined that an agency acts arbitrarily when it

does not appear that the agency has engaged in reasoned decision making, see Heritage

on the San Gabriel Homeowners Ass’n v. Tex. Comm’n on Env’t Quality, 393 S.W.3d

417, 423 (Tex. App.—Austin 2012, pet. denied) (op. on reh’g), or when the agency’s

action or decision denies a party due process, see Lewis v. Metro. Sav. & Loan Ass’n,

550 S.W.2d 11, 16 (Tex. 1977).

5 ANALYSIS

The Commission’s sole issue contends that the district court erred when it reversed

the Commission’s determination that Apache was not an affected person because

substantial evidence supported the Commission’s decision. Apache responds

contending that the trial court’s ruling reversing the Commission was proper.

We begin our analysis by considering whether the trial court erred in determining

that the Commission’s decision was not supported by substantial evidence. In conducting

this review, we must determine whether the evidence as a whole would allow reasonable

minds to conclude that Apache suffered or will suffer actual injury or economic damage

other than as a member of the general public or as a competitor. See 16 TEX. ADMIN.

CODE § 3.9(5)(E)(ii); CALL, 169 S.W.3d at 264. The trial court was required to presume

that the Commission’s findings, inferences, conclusions, and decisions are supported by

substantial evidence and it was Apache’s burden to prove otherwise. CALL, 169 S.W.3d

at 264.

During the contested case hearing, Apache admitted that it did not own the surface

of the property on which the wells would be located and that it did not operate wells within

one-half mile of the proposed wells. While Apache presented evidence of faults that

would allow for the injected oil and gas waste to migrate into the Rustler Aquifer, Boykin

presented evidence that its experts interpreted the seismic data as showing no faulting

allowing migration of injected waste into the Rustler Aquifer. From this conflicting

evidence, the Commission determined that Apache’s evidence did not show that it was

an affected person. We must defer to Commission decisions which are reasonable in

6 light of the evidence before it. Id.; see Cnty. of Reeves v. Tex. Comm’n on Env’t Quality,

266 S.W.3d 516, 528 (Tex. App.—Austin 2008, no pet.) (“The agency determines the

meaning, weight, and credibility to assign conflicting evidence and we may not set aside

an agency decision because testimony was conflicting or disputed or because it did not

compel the agency decision.”) (internal citations omitted). Further, Boykin agreed to take

steps to mitigate any possibility that Apache would suffer actual injury or economic

damage, including drilling monitoring wells to detect migration of waste, halving the

maximum injection volume of the wells, and allotting an additional 1,000 feet between the

top of the disposal interval and the bottom of the groundwater formation. Considering all

the evidence, we conclude that reasonable minds could have determined that Apache

was not an affected person and, therefore, substantial evidence supported the

Commission’s decision. See CALL, 169 S.W.3d at 264.

Apache makes much of the Commission’s technical examiner, the administrative

law judge, and the district court having determined that Apache was an affected person.

However, that this disagreement occurred based on the same evidence highlights that

the evidence is such that reasonable minds could reach different conclusions regarding

Apache’s standing. This reinforces our conclusion that substantial evidence supports the

Commission’s decision.

Further, the trial court, in its judgment, states that, “the Commission erred in

granting the Motion to Dismiss . . . where Apache Corporation demonstrated it is an

affected person . . . .” However, the standard is not whether Apache proved that it is an

affected person but, rather, whether the evidence would prevent reasonable minds from

concluding that it was not. Id. 7 Apache argues that the substantial evidence standard is not the only basis upon

which the Commission’s decision could have been reversed. Specifically, Apache

contends that the Commission’s decision that Apache was not an affected person was

arbitrary and capricious and was in violation of a constitutional or statutory provision.

Whether the Commission’s decision was arbitrary depends on the process

afforded the parties by the Commission. Pub. Util. Comm’n of Tex. v. Tex. Indus. Energy

Consumers, 620 S.W.3d 418, 427 (Tex. 2021). The Commission acts in an arbitrary or

capricious manner when it fails to afford the parties due process, see Tex. Health

Facilities Comm’n v. Charter Med.—Dallas, Inc., 665 S.W.2d 446, 454 (Tex. 1984), or

fails to engage in reasoned decision making, see Heritage on the San Gabriel

Homeowners Ass’n, 393 S.W.3d at 423. Here, Apache argues that the Commission’s

decision denied its due process rights because the decision denied Apache the right to a

contested hearing. However, Apache was fully heard at the contested case hearing

addressing Apache’s status as an affected person. Once the Commission determined

that Apache was not an affected person, Apache did not have standing to challenge

Boykin’s applications. It is not a denial of due process to deny a party without standing

the opportunity to be heard. See Jackson v. Fontaine’s Clinics, Inc., 499 S.W.2d 87, 92

(Tex. 1973) (“A petitioner may not complain of errors which do not injuriously affect him

or which merely affect the rights of others.”).

Apache also contends that the Commission’s decision is arbitrary and capricious

because it does not have any rational connection to the facts. However, we do not see,

and Apache does not show how this standard differs from the substantial evidence

standard. As discussed above, the evidence supports the Commission’s decision and 8 we do not conclude that it was not the result of reasoned decision making. Consequently,

we conclude that the Commission’s determination that Apache is not an affected person

is supported by substantial evidence and is not an arbitrary or capricious decision.

Apache also contends that the Commission’s decision is in violation of its statutory

obligation to protect groundwater and avoid injuring minerals. By this argument, Apache

seems to contend that its evidence conclusively establishes that the waste injected into

the disposal wells will migrate both upward into the Rustler Aquifer and downward into

mineral deposits. As we have determined above, the evidence is such that reasonable

minds can differ regarding whether the waste injected into the disposal wells will migrate

at all. Further, the definition of affected person requires that, to have standing, a person

must “suffer actual injury or economic damage other than as a member of the general

public or as a competitor . . . .” 16 TEX. ADMIN. CODE § 3.9(5)(E)(ii) (emphasis added);

see also NGL Water Sols. Eagle Ford, LLC, 2019 Tex. App. LEXIS 10302, at *21.

Apache’s argument is that it should be allowed to challenge Boykin’s applications

because it has presented evidence that the proposed wells would damage groundwater

and minerals. However, if such were the standard, the requirement that a person with

standing must suffer injury apart from what might affect the general public would be

effectively written out of the law. See Traders & Gen. Ins. Co. v. Weatherford, 124 S.W.2d

423, 426 (Tex. App.—Eastland 1939, writ dism’d) (“effect must be given to the provisions

of the statute in which the words occur and the true meaning determined in such a way

as to give effect to the purposes of the law”). In other words, Apache’s claim that approval

of the disposal wells by the Commission might violate the Commission’s statutory duties

because the wells might affect groundwater and minerals does not establish Apache’s

9 standing to challenge the wells. We conclude that the Commission’s determination that

Apache is not an affected person is not a violation of the Commission’s statutory duty to

protect groundwater and minerals.

CONCLUSION

Having determined that substantial evidence supports the Commission’s decision

that Apache is not an affected person with standing to challenge Boykin’s waste disposal

well permit applications and that this decision is neither arbitrary and capricious nor in

violation of the Commission’s statutory duties, we reverse the trial court’s judgment and

render judgment reinstating the Commission’s final orders dated December 17, 2019.

Judy C. Parker Justice