Court Opinion

ID: 4164815
Source: CourtListenerOpinion
Date Created: 2017-05-01 11:19:55.408006+00
Date Added: 2024-06-11T14:25:07.050000
License: Public Domain

IN THE SUPREME COURT OF TEXAS
                                        444444444444
                                           NO . 14-0979
                                        444444444444

                     FOREST OIL CORPORATION, NOW KNOWN AS
                    SABINE OIL & GAS CORPORATION, PETITIONER,
                                                v.

                     EL RUCIO LAND AND CATTLE COMPANY, INC.,
                        SAN JUANITO LAND PARTNERSHIP, LTD.,
                         MCALLEN TRUST PARTNERSHIP, AND
                       JAMES ARGYLE MCALLEN, RESPONDENTS

           4444444444444444444444444444444444444444444444444444
                            ON PETITION FOR REVIEW FROM THE
                     COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS
           4444444444444444444444444444444444444444444444444444

                                   Argued February 8, 2017

      CHIEF JUSTICE HECHT delivered the opinion of the Court, in which JUSTICE GREEN , JUSTICE
JOHNSON , JUSTICE WILLETT , JUSTICE GUZMAN , JUSTICE LEHRMANN , JUSTICE BOYD , and JUSTICE
DEVINE joined.

       JUSTICE BROWN did not participate in the decision.

       The principal question in this case is whether the Railroad Commission (RRC), which

regulates oil and gas operations in Texas, has exclusive or primary jurisdiction over claims for

environmental contamination, thus precluding suits for damages and other judicial relief. We answer

no. We also decide whether the arbitration award in this case should be vacated for the evident
partiality of a neutral arbitrator or because the arbitrators exceeded their powers,1 and whether the

parties agreed to judicial review of the exemplary damages award. Again, we answer no.

Accordingly, we affirm the judgment of the court of appeals.2

                                                               I

         Through family entities, respondent James A. McAllen controls the 27,000-plus-acre

McAllen Ranch (“the Ranch”) once owned by his great-grandfather, for whom the City of McAllen,

on the Rio Grande River near the southern tip of Texas, is named. Petitioner Forest Oil Corporation

(“Forest”) has produced natural gas on the Ranch for over 30 years. Forest’s leases cover about 1,500

acres, and it maintains a processing plant on 5.75 acres.

         In the 1990s, McAllen sued Forest for underpayment of royalties and underproduction of the

lease. The parties resolved their disputes with a “Settlement Agreement” and a “Surface Agreement”.

The latter provided in part:

         8.         [Forest] will not bring on the Leases any hazardous material . . . . Further
                    [Forest] agree[s] (1) to remove from the Leases, if, as and when required by
                    law, any hazardous material placed or released thereon by [Forest], (2) to
                    perform remedial work where the need therefore arises as a result of and is
                    caused by [Forest’s] operations or activities on the Leases, and (3) to comply
                    in all respects with all federal, state and local governmental laws and
                    regulations governing operations by [Forest] and remedial work on or
                    associated with the Leases.

         9.         [Forest] shall not store or dispose of any hazardous materials on the surface
                    of the Leases. . . .

         1
           See T EX . C IV . P RAC . & R EM . C O D E § 171.088(a) (“[T]he court shall vacate an award if . . . (2) the rights of
a party were prejudiced by: (A) evident partiality by an arbitrator appointed as a neutral arbitrator; [or] (3) the arbitrators:
(A) exceeded their powers . . . .”).

         2
             446 S.W .3d 58 (Tex. App.–Houston [1st Dist.] 2014).

                                                               2
The Surface Agreement also incorporated an arbitration provision in the Settlement Agreement.

         In 2004, McAllen learned from a former Forest employee that Forest had contaminated the

property. Also, McAllen was told, used oilfield tubing Forest had donated to him for construction

of a rhinoceros pen was contaminated with naturally occurring radioactive material (NORM). When

McAllen was diagnosed with sarcoma in his ankle, resulting in the amputation of his right leg below

the knee, he blamed Forest.

         McAllen sued Forest for environmental contamination, improper disposal of hazardous

materials on the Ranch, and maliciously donating the contaminated pipe that caused his injury.3

Forest moved to compel arbitration, McAllen objected, and the trial court denied the motion. We

reversed.4 Meanwhile, in 2007, McAllen asked the RRC to investigate contamination of the Ranch

by Forest. The RRC referred Forest to its voluntary Operator Cleanup Program to propose and

implement plans to remediate soil and groundwater conditions affected by its operations on the

Ranch. The RRC has approved portions of Forest’s proposals but has yet to approve Forest’s

proposed final remediation plan.

         Arbitration proceeded before a panel of three neutral lawyer-arbitrators. Forest chose

B. Daryl Bristow of Houston, and McAllen chose Donato Ramos of Laredo. When Bristow and

Ramos could not agree on a third arbitrator, Forest asked District Judge Dion Ramos of Houston (no

relation to Donato) to name one, and each side proposed candidates. Judge Ramos chose Clayton

         3
           McAllen was joined as plaintiff by three entities he controls, also respondents here: El Rucio Land and Cattle
Company, Inc.; San Juanito Land Partnership, Ltd.; and McAllen Trust Partnership. As their positions are the same, we
refer only to McAllen.

         4
             Forest Oil Corp. v. McAllen, 268 S.W .3d 51, 62 (Tex. 2008).

                                                           3
Hoover of Austin, whom McAllen had proposed.5 A divided panel refused Forest’s request to abate

the proceedings pending final rulings by the RRC and awarded McAllen, as owner of the land, $15

million for actual damages, $500,000 for exemplary damages, and some $6.7 million for attorney

fees; the panel also awarded McAllen, individually, $500,000 for personal injury actual damages.

In addition to these awards, the panel declared:

         a.       [Forest] has a continuing obligation and duty under the Surface Agreement
                  to locate, remediate, and dispose of all hazardous and non-hazardous
                  materials from the [Ranch] related to [Forest’s] operations;

         b.       [Forest] is required to perform remedial work where the need therefore arises,
                  which shall include the removal of any and all hazardous and non-hazardous
                  materials when those materials are no longer necessary in the conduct of
                  [Forest’s] operations on the lease;

         c.       [Forest] is solely responsible for reimbursing [McAllen] for any future costs
                  and expenses incurred by [McAllen] in conducting investigations which
                  result in the identification of additional locations requiring remediation of
                  hazardous and non-hazardous materials on the [Ranch] resulting from
                  [Forest’s] operations; and

         d.       [ Forest] is solely responsible for all future remediation costs and activities
                  related to pollutants, contaminants, and hazardous and non-hazardous
                  materials that are known to be present and/or discovered under those lands
                  covered by the Surface Agreement.

The panel also ordered Forest to provide McAllen a $10 million bond to assure its performance of

these continuing obligations. Arbitrator Bristow issued a 40-page dissent.

         Forest moved to vacate the award on several grounds. Forest argued that the RRC had

exclusive or primary jurisdiction over McAllen’s claims, precluding the arbitration. Forest also

        5
           Unbeknownst to Forest, McAllen, his two lawyers, and their paralegal, none of them Houston residents, each
made $2,500 contributions to newly appointed Judge Ramos’ election campaign— 1/6th of all he raised before the
election. None had previously made a political contribution to a judicial election campaign in Houston.

                                                         4
offered evidence that McAllen had earlier objected to using Ramos as a mediator in another case,

apparently to avoid any conflict in Ramos’ serving as an arbitrator in this case. McAllen had not

communicated with Ramos in the other case, and while the opposing party had contacted Ramos’

staff, there was no evidence that Ramos knew of the mediation. Neither McAllen nor Ramos had

disclosed these facts to Forest when Forest named Ramos an impartial arbitrator; Forest argued that

this nondisclosure showed Ramos’ evident partiality and thus required vacatur of the award. Forest

also argued that the damages awards were in manifest disregard of Texas law, and that the parties

had agreed to expanded judicial review of the arbitration award. The trial court vacated the award’s

$10 million bond requirement but otherwise denied Forest’s motion. The court of appeals affirmed.6

        We granted Forest’s petition for review.7 We consider first whether the RRC has exclusive

or primary jurisdiction over McAllen’s claims, and then whether the grounds for vacatur Forest has

raised are valid.

                                                           II

        The RRC has extensive statutory authority to regulate contamination from oil and gas

operations. Forest argues that its jurisdiction over those matters is exclusive or at least primary.

                                                           A

        “An agency has exclusive jurisdiction when the Legislature gives the agency alone the

authority to make the initial determination in a dispute.”8 As a rule, when an agency has exclusive

       6
            446 S.W .3d 58, 87 (Tex. App.–Houston [1st Dist.] 2014).

        7
            60 Tex. Sup. Ct. J. 77 (Dec. 2, 2016).

       8
            Cash Am. Int’l Inc. v. Bennett, 35 S.W .3d 12, 15 (Tex. 2000).

                                                           5
jurisdiction, a party must exhaust all administrative remedies before seeking judicial review of the

agency’s action, and then “only at the time and in the manner designated by statute.”9 Until then, the

trial court lacks subject-matter jurisdiction and must dismiss the claims within the agency’s exclusive

jurisdiction.10

        Forest argues that the RRC has exclusive jurisdiction over this dispute, foreclosing

McAllen’s common-law contamination claims, so that the arbitration panel lacked jurisdiction to

enter the award and the trial court the jurisdiction to confirm it. Abrogation of a common-law right,

as we have said, “is disfavored and requires a clear repugnance” between the common-law cause of

action and the statutory remedy.11 A statute’s “express terms or necessary implications” must indicate

clearly the Legislature’s intent to abrogate common-law rights.12 Absent such a clear indication, the

RRC did not have exclusive jurisdiction over the claims at issue.

        As a clear indication of such intent, Forest points to Section 26.131(a)(1) of the Texas Water

Code, which states that the RRC “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 . . . .”13 But we

have held that “[t]he ‘solely responsible’ language of Section 26.131 was added by the Legislature

        9
             Id.

        10
             Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W .3d 212, 221 (Tex. 2002).

        11
             Cash Am. Int’l Inc., 35 S.W .3d at 16.

        12
             Id.

        13
             T EX . W ATER C O D E § 26.131(a)(1).

                                                          6
to resolve a jurisdictional dispute between the Railroad Commission and the Water Pollution Control

Board (forerunner to the [Department of Water Resources, now the Texas Commission on

Environmental Quality (TCEQ)]) concerning the regulation of water pollution by the oil and gas

industry.”14 Forest also cites Section 401.415(a) of the Texas Health and Safety Code, which gives

the RRC “sole authority to regulate . . . the disposal of oil and gas NORM waste” like that which

contaminated the tubing that Forest gave McAllen.15 But the provision is part of a subchapter

requiring the TCEQ, the Health and Human Services Commission, and the RRC to “defin[e] their

respective duties”16 under the Texas Radiation Control Act.17 Like Section 26.131(a), Section

401.415(a), in context, delineates authority among agencies; it does not exclude judicial authority

over common-law claims. Forest cites statutes authorizing the RRC to regulate hazardous waste

associated with oil and gas operations.18 But none of those provisions remotely suggests, let alone

clearly indicates, that the RRC’s authority is intended to be exclusive of common-law actions.

         Section 85.321 of the Texas Natural Resources Code provides that a landowner harmed by

a violation of a provision of Chapter 85 of the Texas Natural Resources Code or “another law of this

state prohibiting waste or a valid rule or order of the [RRC] may sue for and recover damages and

         14
             Jackson Cty. Vacuum Truck Serv., Inc. v. Lavaca-Navidad River Auth., 701 S.W .2d 12, 14 (Tex. App.–
Corpus Christi 1985, writ ref’d). Other statutes accompanying Section 26.131 allocate responsibility among agencies.
See T EX . W ATER C OD E §§ 26.129 (“Duty of Parks and W ildlife Department”), 26.130 (“Duty of Department of Health”),
and 26.1311 (“Duty of State Soil and W ater Conservation Board”).

         15
              T EX . H EALTH & S AFETY C O D E § 401.415(a).

         16
              Id. § 401.414.

         17
              Id. § 401.0005.

         18
              T EX . N AT . R ES . C O D E §§ 91.101(a)(4), 91.1011, 91.602(a).

                                                                 7
have any other relief to which he may be entitled at law or in equity.”19 By conferring this right of

action for statutory, rule, and order violations, Forest argues, the Legislature necessarily implied that

the action is exclusive of any action asserting common-law rights. But as the United States Supreme

Court has observed, “[t]he force of any negative implication . . . depends on context. . . . [T]he

expressio unius canon does not apply unless it is fair to suppose that [the legislature] considered the

unnamed possibility and meant to say no to it . . . .”20 Here, the question is whether the Legislature

intended by Section 85.321 to abrogate landowners’ common-law claims, and in that context, its

intent must be expressed clearly, either explicitly or by necessary implication. It is certainly possible

to read a negative implication in Section 85.321, but it is hardly necessary. We cannot give the

statute the effect Forest urges.

        Forest argues that if landowners may seek remediation of contamination both from the RRC

and through the courts, they can recover twice for the same injury, holding operators liable to pay

damages for contamination they are also ordered to clean up. Further, if a landowner does not spend

a damage award on remediation, the RRC remains responsible to the public to order cleanup of the

contamination. But the problem lies within the operator’s control. By seeking an RRC determination

of contamination allegations and complying with RRC cleanup orders, an operator can reduce or

eliminate the landowner’s damages. Forest argues nonetheless that the risk of operators’ double

liability remains, is “unsound public policy”, and is reason enough to confer on the RRC exclusive

        19
             Id. § 85.321.

       20
             Marx v. Gen. Revenue Corp., 133 S. Ct. 1166, 1175 (2013) (internal quotation marks omitted).

                                                          8
jurisdiction over contamination claims. But that is an argument for the Legislature. The issue for us

is whether the Legislature has demonstrated its clear intent to do so. It has not.21

                                                           B

         Unlike exclusive agency jurisdiction, which implicates courts’ subject matter jurisdiction,

primary jurisdiction is a prudential doctrine that allocates power between courts and agencies when

both have authority to make initial determinations in a dispute.22 Under this doctrine, trial courts

should allow an administrative agency to initially decide an issue when: (1) an agency is typically

staffed with experts trained in handling the complex problems in the agency’s purview; and (2) great

benefit is derived from an agency’s uniformly interpreting its laws, rules, and regulations, whereas

courts and juries may reach different results under similar fact situations.23 If primary jurisdiction

requires a trial court to defer to an agency to make an initial determination, the court should abate

the lawsuit and suspend final adjudication of the claim until the agency has an opportunity to act on

the matter.24

         The doctrine of primary jurisdiction does not apply to claims that are “inherently judicial in

nature”,25 such as trespass,26 one of McAllen’s claims. McAllen also asserted claims for negligence,

        21
         The parties disagree as to whether exclusive jurisdiction would bar the landowners’ breach-of-contract claim.
Because we find the RRC does not have exclusive jurisdiction, we need not reach this issue.

        22
              Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W .3d 212, 221 (Tex. 2002).

         23
              Id.

         24
              Id.

        25
              Amarillo Oil Co. v. Energy-Agri Prod., Inc., 794 S.W .2d 20, 26 (Tex. 1990).

        26
              Gregg v. Delhi-Taylor Oil Corp., 344 S.W .2d 411, 415 (Tex. 1961).

                                                            9
negligence per se, fraud, assault, intentional battery, and breach of contract, all inherently judicial

in nature. Nor is the RRC’s “primary jurisdiction . . . so broad-sweeping as to oust the courts of

jurisdiction just because the Commission might have jurisdiction to determine some facts related to

the controversy.”27 While the RRC may make determinations with respect to McAllen’s

contamination claims—indeed, it has already done so—it cannot thereby oust the court of

jurisdiction to decide those claims or refer the decision to arbitration.

       Forest argues that the RRC has primary jurisdiction over McAllen’s claims because the

Surface Agreement required that Forest remove hazardous material it placed on the Ranch only “if,

as and when required by law”, and only the RRC can determine what the law requires. But while

RRC regulations and orders certainly inform the extent to which remediation of contamination is

required by law, they do not supplant Forest’s common-law duties, which are also required by law.

Further, the Surface Agreement also provides that Forest “shall not store or dispose of any hazardous

materials on the surface of the Leases”, “will not bring on the Leases any hazardous material”, and

will “perform remedial work where the need therefore arises as a result of and is caused by Lessees’

operations or activities on the Leases.” The RRC’s determinations of Forest’s obligations under its

rules do not preclude enforcement of Forest’s obligations under the Surface Agreement. McAllen’s

common-law claims are not dependent on the standards of regulatory compliance. Because

McAllen’s claims are inherently judicial, the doctrine of primary jurisdiction does not apply and

vacatur is not warranted for failure to abate the arbitration hearing.

       27
            Amarillo Oil, 794 S.W .2d at 26.

                                                  10
                                                                 III

         Forest argues that the arbitration award must be vacated because of arbitrator Ramos’ evident

partiality and the panel’s manifest disregard of Texas law. Forest also argues that the Surface

Agreement provides for full judicial review of the award.28

                                                                  A

         Courts must vacate arbitration awards when “the rights of a party were prejudiced by . . .

evident partiality by an arbitrator appointed as a neutral arbitrator.”29 Evident partiality is established

by the nondisclosure of “facts which might, to an objective observer, create a reasonable impression

of the arbitrator’s partiality”,30 regardless of whether the nondisclosed information necessarily shows

partiality or bias.31 But disclosure is required only if facts are material; an arbitrator need not disclose

“trivial” matters.32 Some undisclosed relationships are too insubstantial to warrant vacating an

        28
            Forest also argues that there are common-law grounds for vacating the arbitration award. W hile this appeal
has been pending, we held in Hoskins v. Hoskins that the Texas Arbitration Act “leaves no room for courts to expand
on [the statutory grounds for vacatur]”, and a party may avoid confirmation only by demonstrating a statutory ground
for vacatur. 497 S.W .3d 490, 494 (Tex. 2016). Forest concedes that Hoskins disposes of its argument for vacatur on
common-law grounds.

         29
              T EX . C IV . P RAC . & R EM . C O D E § 171.088(a)(2)(A).

         30
              Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437 S.W .3d 518, 524 (Tex. 2014).

        31
              Burlington N. R.R. Co. v. TUCO Inc., 960 S.W .2d 629, 636 (Tex. 1997).

         32
              Id. at 637.

                                                                  11
award.33 And an arbitrator’s impartiality cannot be affected by something of which he is completely

unaware.34

         McAllen’s objection to Ramos’ serving as a mediator in another case was not disclosed to

Forest. It is difficult to see how Ramos could be partial to McAllen for objecting to his serving as

a mediator in a case in which McAllen was a party. One would think, if anything, the objection

would have made Ramos biased against McAllen. But in any event, there is no direct evidence that

Ramos knew of the possible mediation, much less that McAllen had objected to avoid any conflict

with Ramos’ serving as an arbitrator in this case. Even if the fact that Ramos’ staff was contacted

about his serving as a mediator is circumstantial evidence that Ramos knew of the mediation, we

must defer to the trial court’s contrary finding if supported by the evidence.35 The trial court judged

the witnesses’ credibility and weight of their testimony, ultimately concluding that Ramos “should

not be disqualified for failure to disclose a trivial, non-prejudicial, not consummated invitation to

act as mediator.” The trial court’s implied finding that Ramos was unaware of the mediation is

supported by the evidence.36

                                                           B

         Forest argues that the arbitration award must be vacated because the panel exceeded its

authority under the Settlement Agreement by awarding damages not permitted by Texas law and

         33
              Id. at 633.

        34
           Mariner Fin. Group, Inc. v. Bossley, 79 S.W .3d 30, 33 (Tex. 2002) (“Clearly, the relationship could not have
influenced Nettles’s partiality if, in fact, he was unaware of it during the arbitration.”).

         35
              See Tenaska, 437 S.W .3d at 523.

         36
              446 S.W .3d at 81.

                                                          12
issuing declarations that imposed its own notion of economic justice, all in manifest disregard of the

law. In determining whether an arbitrator has exceeded his authority, the proper inquiry is not

whether the arbitrator decided an issue correctly, but rather, whether he had the authority to decide

the issue at all.37

        The Settlement Agreement calls for arbitration of McAllen’s claims,38 including that Forest

breached the Surface Agreement’s requirement that Forest “perform remedial work where the need

therefore arises as a result of and is caused by Lessees’ operations or activities on the Leases.” The

Settlement Agreement gives the arbitrators “the authority to award punitive damages where allowed

by Texas substantive law”. Forest argues that the panel’s award of damages exceeds Texas law, and

therefore the arbitrators exceeded their authority. But the Settlement Agreement also provides that

all “disputes relating to his Agreement or disputes over the scope of this arbitration clause[] will be

resolved by arbitration.” Under this provision, determining what damages Texas law allows is as

much within the arbitrators’ broad authority as determining the amount to be awarded.39 The panel’s

declarations clarified Forest’s remediation obligations under the agreements, outlining which

materials required remediation or removal and which parties would bear future costs. All these issues

are within the bounds of the parties’ agreements, and the panel was authorized to decide them.

        37
          Hoskins v. Hoskins, 497 S.W .3d at 494–495; see also Nafta Traders, Inc. v. Quinn, 339 S.W .3d 84, 90–91,
96–97 (Tex. 2011).

        38
             Forest Oil Corp. v. McAllen, 268 S.W .3d 51, 62 (Tex. 2008).

        39
             Id. at 61.

                                                          13
                                                          C

       Generally, the Texas Arbitration Act restricts judicial review of arbitration awards, but parties

can, by “clear agreement”, contract for expanded judicial review.40 Forest argues that by authorizing

arbitrators “to award punitive damages where allowed by Texas substantive law”, the parties clearly

agreed to judicial review of any award. We disagree. One need only contrast the Settlement

Agreement’s treatment of discovery matters in the same paragraph. The agreement provides that the

panel is to “apply the Texas Rules of Civil Procedure” and its decisions are subject to the parties’

right to apply for relief to the district court, where the court shall apply an “abuse of discretion

standard and render such orders as may be necessary.” No such direction is provided in connection

with exemplary damages. In the absence of a clear agreement to limit the panel’s authority and

expand the scope of judicial review, this Court may not exercise expanded judicial review of

exemplary damages.

                                        *        *        *     *       *

       Accordingly, the court of appeals’ judgment is

                                                                                              affirmed.

                                                      Nathan L. Hecht
                                                      Chief Justice

Opinion delivered: April 28, 2017

       40
            Nafta Traders, Inc. v. Quinn, 339 S.W .3d at 101.

                                                         14