Court Opinion

ID: 2874600
Source: CourtListenerOpinion
Date Created: 2015-09-06 05:52:06.058998+00
Date Added: 2024-06-11T12:46:08.453459
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                      NO. 03-08-00005-CV

                             Osage Environmental, Inc., Appellant

                                                 v.

                            Railroad Commission of Texas, Appellee

     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
       NO. D-1-GN-05-004551, HONORABLE DARLENE BYRNE, JUDGE PRESIDING

                            MEMORANDUM OPINION

                This appeal concerns a suit for judicial review of a final order issued by appellee

Railroad Commission of Texas finding that appellant Osage Environmental, Inc., violated its permit

to handle oil and gas waste, Commission Statewide Rules 8 (“Rule 8”) and 78 (“Rule 78”),1 and

statutes authorizing the Commission to regulate oil and gas waste. The district court affirmed

the Commission’s order, and Osage appeals. In five issues, Osage challenges the Commission’s

authority to require Osage to obtain a permit and the Commission’s interpretation and application

of its rules. Because we conclude that the Commission’s final order was consistent with the statutes

and rules authorizing the Commission to regulate oil and gas waste and that the Commission’s final

order was supported by substantial evidence, we affirm the district court’s judgment affirming the

Commission’s final order.

       1
           16 Tex. Admin. Code §§ 3.8, .78 (2008) (Railroad Comm’n).
                                           BACKGROUND

                As an oilfield waste hauler, John P. “Pat” Rozypal, president of Osage, contracted

with oilfield operators to dispose of cuttings and other oilfield waste. In July 2000, an inspection

by the Commission’s district office revealed that Osage was receiving and storing oilfield waste

consisting primarily of oil-based drill cuttings.2 The testimony showed that Rozypal sometimes

hauled the cuttings to an authorized disposal facility but, at other times, Rozypal would take the

cuttings to the “Rozypal Ranch Facility” in Jim Wells County where Osage would stockpile it,

hoping to recycle it into road base to sell to paving contractors.

                When Rozypal first contacted the Commission in 1999 to ask if Osage needed

to obtain a permit from the Railroad Commission, the Commission told him that Osage did not

need a permit. In a letter dated September 3, 1999, the Commission explained that it was returning

Rozypal’s application because it understood that Osage had registered with the Texas Commission

on Environmental Quality (“TCEQ”), formerly known as the Texas Natural Resources Conservation

Commission (“TNRCC”), as a waste recycling facility under Title 30, Chapter 335 of the Texas

Administrative Code. See 30 Tex. Admin. Code §§ 335.1-.594 (2008) (TCEQ). Upon further

consideration, the Commission determined that, in fact, Rule 8 required Osage to obtain a permit

to “store and process waste and re-use processed material as road base.” See 16 Tex. Admin. Code

§ 3.8 (2008). The Commission notified Osage that a permit was required in a letter dated July 31,

2000, and requested Osage to file a completed permit application on or before August 31, 2000.

        2
         Drill cuttings are bits of rock and soil cut from subsurface formations by the drill bit during
the process of drilling a well and then lifted to the surface by circulation of oil-based drilling fluids.

                                                    2
               On August 28, 2000, Rozypal sent a letter to the Commission’s Environmental

Services Division on behalf of Osage requesting “a letter of authority and or recycling permit

for certain types of oilfield waste subject to the jurisdiction of the [Commission].” Although some

negotiations occurred between Osage and the Commission, in a letter dated December 19, 2000, the

Commission denied Osage’s application based on numerous deficiencies. This letter also advised

Osage of its right to request a hearing. Without requesting a hearing, Osage filed suit against the

Commission in a Travis County district court. By its suit, Osage sought a declaration on whether

the Commission properly applied Rule 8 to require Osage to obtain a permit. While this suit was

pending, Osage continued to negotiate the terms of a permit with Commission staff. Osage also

continued to receive oilfield waste at the Rozypal Ranch Facility.

               In June 2003, Osage and the Commission reached an agreement on the permit terms.

Osage also agreed to reduce its stockpile of waste to 10,000 cubic yards, to file required reports

with the Commission, and to file financial security with the Commission as required by Rule 78.

See 16 Tex. Admin. Code § 3.78 (2008); see also Tex. Nat. Res. Code Ann. § 91.109 (West Supp.

2007). Based on these agreements, the Commission issued permit number STF-011 to Osage on

June 26, 2003, and Osage dismissed its lawsuit against the Commission.

               Shortly thereafter, an inspection revealed that Osage had breached the agreement

to reduce its stockpile of waste. The inspection found that instead of reducing its stockpile of

waste, Osage had continued to receive even more waste. Moreover, Osage had not filed the required

financial security with the Commission. See 16 Tex. Admin. Code § 3.78. In response to

Commission demands, Osage submitted a timeline for compliance with the terms of its permit. But

                                                3
Osage failed to meet its own timeline, and the Commission initiated administrative enforcement

proceedings against Osage for violating the terms of its permit.

               Osage again filed suit against the Commission and sought to enjoin the enforcement

proceedings because Osage, as a recycler, was not subject to Commission regulation under Rule 8.

After a temporary injunction hearing, the district court signed an agreed order that abated

the enforcement proceedings until November 18, 2004, subject to Osage filing financial security

with the Commission on or before August 6, 2004, and completing the necessary permit

requirements to demonstrate the feasibility of recycling oilfield waste into quality road base material

by November 3, 2004. The agreed order also provided that Osage could resume commercial

operations in accordance with the terms of its permit once the Commission approved the financial

security filed by Osage.

               Osage filed the required security with the Commission in the form of a $500,000

bond on August 24, 2004. Although the Commission approved the bond filed by Osage, Osage

did not fulfill the necessary permit requirements as specified in the agreed order. An inspection of

the Rozypal Ranch Facility on January 14, 2005, showed that Osage had not reduced its stockpile

of waste to the 10,000 cubic yards covered by its bond and that Osage was storing approximately

48,750 cubic yards of waste. A follow-up inspection two months later showed that the amount of

stockpiled, unprocessed waste at the Rozypal Ranch Facility had grown to approximately 62,455

cubic yards.

               Based on Osage’s continued noncompliance, the Commission resumed its

enforcement proceedings against Osage. The Commission held a hearing on Osage’s alleged permit

                                                  4
and rule violations in May 2005, which resulted in a final order imposing administrative penalties

of $40,000 against Osage for violations of its permit and Commission rules. The Commission

denied Osage’s motion for rehearing on November 29, 2005. Osage then filed a third lawsuit

seeking judicial review of the Commission’s final order.          The district court affirmed the

Commission’s order in all respects, and this appeal followed.

                                          DISCUSSION

               The primary issue before us is whether Osage, as a purported waste recycler,

must comply with Rule 8. See 16 Tex. Admin. Code § 3.8. The record reveals a fundamental

disagreement between Osage and the Commission about whether the ongoing recycling activities

at the Rozypal Ranch Facility are subject to regulation by the Commission under Rule 8. In five

issues, Osage challenges the Commission’s regulatory authority under Rule 8 as well as its findings

and conclusions that Osage was required to obtain a permit in the first instance and that Osage

violated the permit issued by the Commission in 2003.

Standard of Review

               We review the Commission’s final order under the substantial evidence rule. See

Tex. Nat. Res. Code Ann. § 85.241 (West 2001); Tex. Gov’t Code Ann. § 2001.174 (West 2000);

Railroad Comm’n v. Pend Oreille Oil & Gas Co., 817 S.W.2d 36, 40 (Tex. 1991). Because our

examination of the Commission’s final order involves the interpretation of an administrative

rule, “we employ well-settled principles of statutory construction.” Continental Cas. Co. v. Rivera,

124 S.W.3d 705, 710 (Tex. App.—Austin 2003, pet. denied); see Lewis v. Jacksonville Bldg. & Loan

                                                 5
Ass’n, 540 S.W.2d 307, 310 (Tex. 1976). We review questions of statutory construction de novo.

Texas Dep’t of Transp. v. Needham, 82 S.W.3d 314, 318 (Tex. 2002); Bragg v. Edwards Aquifer

Auth., 71 S.W.3d 729, 734 (Tex. 2002). When ascertaining the scope of an agency’s authority,

we give great weight to the agency’s construction of a statute it is charged with enforcing. State

v. Public Util. Comm’n, 883 S.W.2d 190, 196 (Tex. 1994). We also recognize that an administrative

agency has the power to interpret its own rules, and its interpretation is entitled to great weight

and deference.    Gulf States Utils. Co. v. Public Util. Comm’n, 784 S.W.2d 519, 527 n.5

(Tex. App.—Austin 1990), aff’d, 809 S.W.2d 201, 207 (Tex. 1991) (citing Udall v. Tallman,

380 U.S. 1, 16 (1965)). An agency’s construction of its rules is controlling unless it is plainly

erroneous or inconsistent with the text of the rule. Rivera, 124 S.W.3d at 710; Gulf States Utils. Co.,
784 S.W.2d at 528. As a reviewing court, we may not view a part of the rule in isolation. Rivera,
124 S.W.3d at 710. We must consider the rule as a whole, and we must also ensure that the agency

has interpreted its rule in harmony with its enabling statute. Id.

Commission Enforcement Authority

               In its first two issues, Osage challenges the district court’s judgment affirming

the Commission’s conclusions that Osage violated Rule 8 and Rule 78. See 16 Tex. Admin. Code

§§ 3.8, .78. Osage argues that the Commission erred in its conclusion that Osage violated these rules

because the Commission had no authority to require Osage to obtain a permit in the first instance.

The crux of Osage’s argument is that it was recycling, not disposing of or reclaiming, the drill

cuttings that it received. For the following reasons, we disagree.

                                                  6
                The legislature has charged the Commission with authority to prevent pollution of

surface water or subsurface water from activities associated with the exploration, development,

and production of oil and gas or geothermal resources. See Tex. Nat. Res. Code Ann. § 91.101

(West Supp. 2007); Tex. Water Code Ann. § 26.131(a) (West 2008). Section 91.101 of the natural

resources code authorizes the Commission to adopt and enforce rules and allows the Commission

to issue permits relating to “the discharge, storage, handling, transportation, reclamation, or disposal”

of oil and gas waste or any other substance or material associated with any operation or activity

regulated by the Commission. Tex. Nat. Res. Code Ann. § 91.101. And section 91.1011 of the

natural resources code defines oil and gas waste as “waste that arises out of or incidental to the

drilling for or producing of oil or gas,” including, among other things, “salt water, brine, sludge,

drilling mud, and other liquid, semiliquid, or solid waste material.” Id. § 91.1011 (West 2001).

Section 26.131 of the water code also provides that:

        [t]he Railroad Commission of Texas is solely responsible for the control and
        disposition of waste and the abatement and prevention of pollution of surface and
        subsurface water resulting from . . . activities associated with the exploration,
        development, and production of oil or gas or geothermal resources.

Tex. Water Code Ann. § 26.131(a).

        Rule 8 — Water Protection

                To comply with its legislative mandate to prevent the pollution of surface and

subsurface water, the Commission adopted Rule 8. See 16 Tex. Admin. Code § 3.8. Rule 8 is the

most comprehensive Commission rule relating to water protection. Id. In relevant part, Rule 8

                                                   7
provides that “no person may dispose of any oil and gas wastes by any method without obtaining a

permit to dispose of such wastes.” Id. § 3.8(d)(1). Subsection (a)(26) defines the term “oil and gas

wastes” to include:

        [m]aterials to be disposed of or reclaimed which have been generated in connection
        with activities associated with the exploration, development and production of oil
        and gas or geothermal resources, as those activities are defined in paragraph (30) of
        this subsection, and materials to be disposed of or reclaimed which have been
        generated in connection with activities associated with the solution mining of brine.

Id. § 3.8(a)(26). This definition further provides that the term “oil and gas wastes” includes, but is

not limited to, “saltwater, other mineralized water, sludge, spent drilling fluids, cuttings, waste oil,

spent completion fluids, and other liquid, semiliquid, or solid waste material.” Id. (emphasis added).

Rule 8 also defines what it means to dispose of oil and gas wastes:

        To dispose—To engage in any act of disposal subject to regulation by the
        commission including, but not limited to, conducting, draining, discharging, emitting,
        throwing, releasing, depositing, burying, landfarming, or allowing to seep, or to cause
        or allow any such act of disposal.

Id. § 3.8(a)(24).

        Rule 78 — Fees and Financial Security Requirements

                In addition to Rule 8, the Commission has adopted Rule 78 relating to fees

and financial security requirements for commercial facilities. See 16 Tex. Admin. Code § 3.78.

Essentially, Rule 78 requires a facility owner or operator to provide financial security for the

estimated closure costs of the facility if the owner or operator “receives compensation from others

                                                   8
for the storage, reclamation, treatment, or disposal of oil field fluids or oil and gas wastes that are

wholly or partially trucked or hauled to the facility and whose primary business is to provide these

services for compensation” if, among other things, the facility is permitted under Rule 8. See id.

§ 3.78(a)(3) (defining “commercial facility”), (l)(1)(A)(I) (requiring estimate of maximum dollar

amount to close facility), (l)(3)(A) (requiring financial security).

       The Evidence

               During the administrative hearing, Rozypal testified that Osage was in the business

of recycling “oil based cuttings” into road base, and he described Osage’s recycling process

as follows:

       [W]e take a material or an ingredient that we take off the drilling rigs and we bring
       it into our facility. The ingredient is immediately mixed with caliche, which has
       calcium and lime, and then we start what is called a pre-process. Then if we wanted
       to further enhance the material to make it where it was, say, had better compressive
       strengths, depending on the type of road or parking lot that it was going to go on,
       then we would enhance it by maybe adding some other chemicals such as an asphalt
       emulsion or some cement or lime to improve the compressive strengths and the
       stability of the material and kind of depending on the order. Then we would . . . sell
       it to different customers.

Osage also provided testimony that, when properly completed, the recycling process used by Osage

would encapsulate the oil based cuttings and allow Osage to sell the resulting product as road base.

Thus, according to Osage, it was recycling oil based cuttings and was not engaged in the disposal

or reclamation of oil and gas wastes as described in Rule 8 and, therefore, was not required to obtain

a permit.

                                                   9
               The evidence revealed, however, that when Osage transported the oil based cuttings

to the Rozypal Ranch Facility it would discharge the cuttings from a truck and deposit them directly

on the ground, where they would be subject to the elements and potential surface water run-off.

Osage would then mix the oil based cuttings with caliche and re-deposit and store this “premix

material” on the ground. An April 8, 2003, inspection report prepared by the Commission’s district

office showed that Osage had a stockpile of approximately 24,000 cubic yards of waste mixed with

caliche. Subsequent inspection reports dated November 25, 2003, and April 21, 2004, showed that

Osage’s premix stockpile of waste and caliche had grown to approximately 27,000 cubic yards. And

another inspection report dated March 16, 2005, showed that Osage had accumulated approximately

62,455 cubic yards of oil based cuttings mixed with caliche in a pile 292N x 385N x 15N high.

               The plain language of Rule 8 defines “oil and gas waste” to include drill cuttings. See

16 Tex. Admin. Code § 3.8(a)(26); see also Railroad Comm’n of Tex., Waste Minimization in the

Oil Field 4-1 (July 2001), available at http://www.rrc.state.tx.us/divisions/og/key-programs/manual/

wastemin.pdf.3 This definition is consistent with the Commission’s enabling act, which defines “oil

and gas waste” as “waste arising out of or incidental to the drilling for or producing of oil or gas,”

including solid waste material. See Tex. Nat. Res. Code Ann. § 91.1011.

               Despite the plain language of these definitions, Osage argues that, because it intended

to recycle the cuttings into road base, the oil based cuttings it receives at the Rozypal Ranch Facility

       3
           Commission Statewide Rule 30 also identifies cuttings as “waste materials . . . subject
to the jurisdiction of the [Railroad Commission].” See 16 Tex. Admin. Code § 3.30(e)(1) (2008)
(Memorandum of Understanding Between the Railroad Commission of Texas and the Texas
Commission on Environmental Quality).

                                                  10
are not “oil and gas waste” within the meaning of the statute or the Commission’s rule. Osage

further argues that its intent is controlling with regard to whether the cuttings are an “oil and gas

waste” or merely an ingredient used in its recycling process. Although the parties agreed that Osage

was operating a legitimate recycling facility, the Commission rejected Osage’s argument and

concluded that the cuttings received by Osage did not lose their identity as “oil and gas waste” until

they have been recycled into finished road base within the parameters of the permit issued to Osage.4

As a result, the Commission concluded that Osage was required to obtain a permit and that Osage

violated Rule 8(d)(1) by depositing or discharging oil and gas waste without a permit.

               The Commission’s conclusions are supported by the plain language of the statutes it

is charged with enforcing and its rules. See Tex. Nat. Res. Code Ann. §§ 91.101, .1011; Tex. Water

Code Ann. § 26.131; 16 Tex. Admin. Code § 3.8. The legislature has given the Commission broad

powers to prevent water pollution, including the power to issue permits relating to the discharge,

storage, handling, transportation, reclamation, or disposal of oil and gas waste or of any other

substance or material associated with any operation or activity regulated by the Commission. See

Tex. Nat. Res. Code Ann. §§ 91.101, .1011; Tex. Water Code Ann. § 26.131; Lone Star Salt Water

       4
          Federal courts that have considered arguments similar to Osage’s have likewise rejected
such arguments. See Owen Elec. Steel Co. v. Browner, 37 F.3d 146, 149-50 (4th Cir. 1994)
(discussing cases and concluding that slag, which lay on the ground for six months for tempering
and weathering, was not used immediately in the steel production process and was, therefore, subject
to EPA permitting requirements under the Resource Conservation and Recovery Act (RCRA),
42 U.S.C.A. §§ 6901-6992k (West 2003 & Supp. 2008)); American Mining Congress v. EPA,
824 F.2d 1177, 1185-86 (D.C. Cir. 1987) (explaining that materials used in ongoing manufacturing
or industry process are not waste). Applying the rationale of these decisions to the circumstances
presented here, the Commission properly determined that the cuttings received by Osage and
stockpiled as “premix material” are waste because they lay on the ground and were not immediately
used in an ongoing manufacturing or oil and gas industry process.

                                                 11
Disposal Co. v. Railroad Comm’n, 800 S.W.2d 924, 927 (Tex. App.—Austin 1990, no writ). Based

on the record before us, we hold that the Commission acted within its authority to require Osage to

obtain a permit for its activities. See Tex. Nat. Res. Code Ann. §§ 91.101, .1011; Tex. Water Code

Ann. § 26.131; 16 Tex. Admin. Code § 3.8.

               Moreover, we find no merit in Osage’s argument that as a legitimate recycling

facility it was not subject to Commission rules regulating the disposal of oil and gas waste. The

Commission’s enabling act gives the Commission broad discretion to regulate “the discharge,

storage, handling, transportation, reclamation, or disposal of oil and gas waste” to prevent water

pollution. See Tex. Nat. Res. Code Ann. § 91.101(4). As a reviewing court, we are not bound by

the reasons given by the Commission in its final order, so long as there is a valid basis in the record

to support the Commission’s action. See Texas Health Facilities Comm’n v. Charter Med.-Dallas,

Inc., 665 S.W.2d 446, 452-53 (Tex. 1984); Railroad Comm’n v. City of Austin, 524 S.W.2d 262, 279

(Tex. 1975). We may sustain the Commission’s action if the evidence is such that reasonable minds

could have reached the conclusion that the Commission must have reached in order to justify its

action. See Suburban Util. Corp. v. Public Util. Comm’n, 652 S.W.2d 358, 364 (Tex. 1983). Even

if we agreed with Osage’s argument that it was not engaged in the disposal of oil and gas waste, the

record evidence demonstrates that Osage’s activities included, among other activities subject to

Commission regulation, the transportation, storage, handling, and discharge of oil and gas waste.

See Tex. Nat. Res. Code Ann. § 91.101; 16 Tex. Admin. Code § 3.8. We conclude that this evidence

is such that reasonable minds could have reached the conclusion that the Commission must have

                                                  12
reached in order to justify its determination that Osage was required to obtain a permit. See Charter

Med., 665 S.W.2d at 452-53; Suburban Util. Corp., 652 S.W.2d at 364.

               With regard to Osage’s claim that it was not required to file financial security because

it was not required to obtain a permit, we likewise reject that claim. Having concluded that the

Commission properly required Osage to obtain a permit for its activities, we conclude that the

Commission acted within its authority to require Osage to file financial security. See Tex. Nat. Res.

Code Ann. §§ 91.101, .109; Tex. Water Code Ann. § 26.131; 16 Tex. Admin. Code § 3.78. We

overrule Osage’s first and second issues.

Permit Violations

               In its third, fourth, and fifth issues, Osage contends that the Commission erred

in concluding that Osage violated the terms of the permit issued by the Commission on June 26,

2003. Although Osage preserved these issues for our review by including them in its motion for

rehearing before the Commission, see Hill v. Board of Trs. of the Ret. Sys. of Tex., 40 S.W.3d 676,

679 (Tex. App.—Austin 2001, no pet.); United Sav. Ass’n v. Vandygriff, 594 S.W.2d 163, 169-70

(Tex. App.—Austin 1980, writ ref’d n.r.e.), we observe as an initial matter that Osage has failed

to properly brief these issues on appeal. See Tex. R. App. P. 38.1(h). Texas Rule of Appellate

Procedure 38.1 provides that a brief to this Court “must contain a clear and concise argument

for the contentions made, with appropriate citations to authorities and to the record.” See id.;

McIntyre v. Wilson, 50 S.W.3d 674, 682 (Tex. App.—Dallas 2001, pet. denied). Osage’s brief cites

no authority for its claims that the Commission erred in concluding that Osage violated the terms of

its permit. An issue on appeal unsupported by argument or citation to any legal authority presents

                                                 13
nothing for the appellate court to review. See Strange v. Continental Cas. Co., 126 S.W.3d 676, 678

(Tex. App.—Dallas 2004, pet. denied). Accordingly, we conclude that Osage has presented nothing

for our review. See id.

               But even if we were to consider Osage’s claims, on this record, we cannot conclude

that the Commission erred in finding that Osage violated the terms of its permit. The record shows

that the Commission issued permit number STF-011 to Osage on June 26, 2003. Under the terms

of this permit, Osage was required to: (1) file semi-annual reports with the Commission; (2) file

financial security with the Commission before receiving oil and gas waste at the Rozypal Ranch

Facility; and (3) refrain from continuing to receive oil and gas waste at the Rozypal Ranch Facility

when the financial security filed by Osage was not the amount of financial security required by Rule

78. As we construe Osage’s arguments, Osage contends that it was not required to obtain a permit

and, therefore, cannot be liable for violating the terms of a permit it was not required to obtain.

Having previously determined that the Commission acted within its authority to require Osage to

obtain a permit, we conclude there is no merit to Osage’s claims.

               The record showed that Osage was required to file semiannual reports beginning

six months from the date of the permit. There is no evidence that Osage filed any reports with the

Commission in compliance with the terms of its permit. The record also showed that Osage’s permit

included a provision requiring it to file financial security with the Commission prior to receiving oil

and gas waste. Under the terms of its permit, Osage was required to file financial security in the

amount of $508,402.90 based on a closure cost estimate for 10,000 cubic yards of waste. Inspection

reports prepared by the Commission’s district office showed that, as of November 25, 2003, Osage

                                                  14
had accumulated a stockpile of 27,000 cubic yards of waste mixed with caliche—well in excess

of the 10,000 cubic yards of waste allowed under the terms of its permit. The record further

demonstrated that Osage did not file financial security with the Commission until August 24, 2004.

But even after filing its financial security, Osage continued to receive oil and gas waste in excess of

the 10,000 cubic yards specified in its permit. An inspection report dated January 14, 2005, showed

that Osage had stockpiled 48,750 cubic yards of oil and gas waste mixed with caliche. Another

inspection report dated March 16, 2005, disclosed a stockpile of waste mixed with caliche of 62,455

cubic yards, in a pile 292N x 385N x 15N high. We conclude that there is substantial evidence in the

record to support the Commission’s conclusions that Osage violated the terms of its permit. We

overrule Osage’s third, fourth, and fifth issues.

                                          CONCLUSION

               Because we conclude that the Commission’s final order was consistent with

the statutes and rules authorizing the Commission to regulate oil and gas waste and that the

Commission’s final order was supported by substantial evidence, we affirm the district court’s

judgment affirming the Commission’s final order.

                                               __________________________________________

                                               Jan P. Patterson, Justice

Before Justices Patterson, Puryear and Henson

Affirmed

Filed: July 24, 2008

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