MCLE Self-Study Article: Fracking: Expected Lawsuits

By Jean L. Bertrand and Lindsey N. Berg

First published in a combined publication of the Environmental Law News and California Real Property Journal,

publications of the Environmental Law and Real Property Law Sections of the State Bar of California.

©2013 The State Bar of California.

I. INTRODUCTION

The controversy over hydraulic

fracturing, or “fracking”, is rapidly making its

way west to California and litigation will soon

follow. Fracking is a technique whereby oil

and gas miners inject high-pressure fluids

created by mixing water, chemicals and

proppants such as sand deep into oil and gas

reservoirs to fracture the surrounding rock

and permit or increase access to oil and gas.i

Oil and gas companies currently use fracking

in California, but on a relatively small scale,

primarily in a remote oil field in Kern County.ii

In recent years, heightened demand for

affordable energy sources and advances in

fracking technology have increased the

prevalence of fracking activities nationwide,

including in California where fracking

technologies now allow oil and gas companies

to extract previously unreachable oil and gas

reserves.iii In particular, the prospect of

extensive new fracking efforts in California’s

Monterey Shale recently led to an increased

focus on fracking and its possible impact in

California.iv

This article provides an overview of

the increased interest in utilizing fracking in

California and the legal challenges previously

raised by opponents of fracking in states such

as New York, Pennsylvania, and New Mexico

where fracking is more prevalent. It then

analyzes how California courts will likely

resolve those same challenges and related

issues under California law.

II. WHY FRACK CALIFORNIA?

The oil and gas industry has used fracking to

some degree in California for the past 30

years.v County records for 10 California

counties – Colusa, Glenn, Kern, Los Angeles,

Monterey, Sacramento, Santa Barbara, Sutter,

Kings and Ventura – disclose fracking

activities within their respective borders.vi

However, the interest in and debates over

fracking recently increased because of

improved technology and its potential use in

California’s Monterey Shale, an oil reservoir

estimated to hold more than half of the

undeveloped, previously unrecoverable shale

oil resources believed to exist in the

continental United States.vii The Monterey

Shale spans much of the Central Valley and

the Central Coast, along with Los Angeles.viii

According to United States government

estimates, the Monterey Shale contains as

much as 15.4 billion barrels of oil.ix

As pressure to develop the Monterey Shale

and similar oil and gas reservoirs increases, so

does significant public focus on the potential

impacts of fracking on the economy, the

environment and public health.x A study

conducted by the University of Southern

California scientists (and funded by the oil

industry) estimated fracking could create

500,000 jobs over the next several years and

over $25.6 billion in state and local tax

revenue in 2020 alone.xi Opponents,

however, contend fracking poses serious

threats to air quality, water quality, climate

stability, aquatic and terrestrial ecosystems,

and even seismic stability.xii

What follows is an overview of the various

ways fracking opponents will likely utilize

California law to try to stop the oil and gas

industry from tapping the Monterey Shale.

III. CONSTITUTIONAL CHALLENGES

Based on previous fracking challenges

in New York and Pennsylvania, local

governments in California will try to control

fracking through local regulation, including

zoning ordinances. In other states, oil and

gas companies previously opposed these local

efforts to restrict fracking by arguing that

state laws and/or constitutional provisions

preempt local zoning ordinances.xiii These

types of arguments are unlikely to succeed in

California, as the California legislature has

expressed an intent that local governments

continue to enact laws and regulations

regulating oil production activities.xiv

A. Constitutional Issues in Comparable

States

In August 2011, the Town of Dryden

in New York passed an amendment to its local

zoning ordinance banning any activity related

to the exploration or production of natural gas

and petroleum.xv Growing concerns over the

use of fracking within the municipality

predominantly influenced the passage of the

amendment.xvi The New York Constitution

grants “every local government [the] power to

adopt and amend local laws not inconsistent

with the provisions of [the] constitution or any

general law relating to its property, affairs or

government.”xvii Among the powers delegated

to local governments is the authority to

regulate the use of land through zoning

laws.xviii

In Norse Energy Corp. USA v. Town of

Dryden, fracking proponents sued the Town of

Dryden, alleging that New York’s Oil, Gas and

Solution Mining Law (“OGSML”) preempted

the ordinance.xix OGSML provides that its

provisions “supersede all local laws or

ordinances relating to the regulation of the oil,

gas and solution mining industries.”xx As

OGSML did not define “regulation,” the court

considered its ordinary and natural meaning,

defined as “an authoritative rule dealing with

details or procedure.”xxi The court concluded

that the zoning ordinance did not seek to

regulate the details or procedures of the oil,

gas and solutions mining industries.xxii

Rather, it established permissible and

prohibited uses of land for the purpose of

regulating land generally.xxiii In reaching its

holding, the court reasoned that while the

Town’s exercise of its right to regulate land

use through zoning would inevitably affect oil

and gas mining, zoning ordinances are not the

type of regulatory provision that the New York

legislature intended to preempt with

OGSML.xxiv Thus, the court concluded that

OGSML “[did] not preempt, either expressly or

impliedly, a municipality’s power to enact a

local zoning ordinance banning all activities

related to the exploration for, and the

production or storage of, natural gas and

petroleum within its borders.”xxv

Fracking proponents in other states

have challenged state and local laws

regulating the fracking industry as

unconstitutional under both the federal and

state constitutions as well. In Robinson

Township. v. Commonwealth of Pennsylvania,

several Pennsylvanian townships challenged

the constitutionality of the Commonwealth’s

Act 13 pertaining to oil and gas.xxvi Act 13

repealed Pennsylvania’s Oil and Gas Act and

replaced it with a codified statutory framework

regulating oil and gas operations in the

Commonwealth. The Pennsylvania legislature

specifically designed Act 13 to regulate

fracking of the Marcellus Shale deposit.xxvii

Act 13 purported to preempt local regulation,

including environmental laws and zoning code

provisions, except in limited instances

regarding setbacks. Section 3304 of Act 13

further required municipalities to amend their

zoning ordinances to allow oil and gas

operations in all zoning districts.xxviii

The plaintiffs argued Act 13’s

requirements violated due process under

Article 1, § 1 of the Pennsylvania Constitution

and the Fourteenth Amendment of the United

States Constitution.xxix The Commonwealth

argued that Act 13 did not violate due process

under either constitution because it had a

rational basis for the law, and its enactment

constituted a proper exercise of the

Commonwealth’s police powers.xxx

To determine whether a zoning

ordinance is unconstitutional, courts must

make a substantive due process inquiry,

taking into consideration the rights of all

property owners and the public interests

sought to be protected.xxxi The Robinson

Township court stated that under that

standard, zoning “must be directed toward the

community as a whole, concerned with the

public interest generally, and justified by a

balancing of community costs and

benefits.”xxxii Elsewhere, those considerations

have been summarized as requiring that

“zoning be in conformance with a

comprehensive plan for growth and

development of the community.”xxxiii

In reaching its decision, the

Robinson Township court noted that the public

policy interests that justify the exercise of

police power over mining differ from the

public policy interests that justify the exercise

of police power over zoning.xxxiv The state’s

interest in oil and gas development centers

primarily on the efficient production and

utilization of the natural resources in the

state. Zoning ordinances, on the other hand,

foster the orderly development and use of

land in a manner consistent with local issues,

including local environmental concerns.xxxv

Thus, the Robinson Township court concluded

that section 3304’s requirement that

municipalities amend their local zoning

ordinances was an invalid attempt to exercise

police power divorced from the state’s

legitimate interest in the exploitation of oil

and gas resources.xxxvi

The court held that the Pennsylvania

legislature could only justify section 3304’s

zoning amendments if the amendments were

in accord with the municipalities’

comprehensive plan for zoning.xxxvii The goal

of the comprehensive plan was to assure

people who made investment decisions

regarding businesses and homes within a

particular zoning district that the zoning

district would develop in accordance with the

plan.xxxviii The court found that by requiring

municipalities to enact laws inconsistent with

their own comprehensive plans for growth and

development, section 3304 violated

substantive due process because (1) it did not

protect the interests of neighboring property

owners from harm, (2) altered the character

of neighborhoods, and (3) made irrational

classifications.xxxix Therefore, since the

Robinson Township court determined that the

changes required by section 3304 were not a

proper exercise of the police power over

zoning, the court concluded that Act 13

violated substantive due process. xl

B. Constitutional Issues in California

In California, state preemption of local

laws may be express or implied.xli A conflict

between state and local laws exists if the local

ordinance duplicates, contradicts, or enters an

area fully occupied by general law, either

expressly or by legislative implication.xlii If

the state laws fully occupy the subject matter

or field of the legislation, there is no room for

supplementary or complementary local

legislation.xliii However, implied preemption of

an area where state law expressly allows

supplementary local legislation cannot exist.xliv

The California Public Resources Code (the

“PRC”) permits the unification of tracts of land

to provide for the management, development,

and operation of the tracts as a unit in order

to prevent waste and to increase the ultimate

recovery of oil and gas.xlv Well-spacing plans

adopted by the State Oil and Gas Supervisor

may include a requirement that, as a

prerequisite to approval to drill or redrill a

well, the driller must include all or certain

parcels of land in a pooling or unit

agreement.xlvi Section 3690 of the PRC

specifically provides that the PRC may not be

deemed to preempt any existing right of cities

and counties to enact and enforce laws and

regulations regarding the conduct and location

of oil production activities, including, but not

limited to, “zoning, fire prevention, public

safety, nuisance, appearance, noise, fencing,

hours of operation, abandonment and

inspection.”xlvii While California has yet to

issue final fracking regulations, it is unlikely

that California courts will deem local laws

pertaining to fracking preempted under any

future regulations given the legislature’s clear

intent that local governments continue to

enact laws and regulations regulating oil

production activities.

IV. LAND LEASE ISSUES

In addition to potential constitutional

challenges, fracking will likely result in

contractual challenges in California. Fracking

often involves the creation of land leases

between property owners and oil and gas

companies. As a result, issues relating to the

interpretation of land lease contracts are likely

to arise, and may ultimately dictate whether

oil and gas companies have the right to

engage in fracking operations.

In interpreting land lease contracts,

courts traditionally consider (1) the effect of

older deeds and delayed rental payments on

the rights to natural gas, (2) the effect of

force majeure provisions on lease terms, and

(3) traditional property issues, including the

rule of capture and the payment of royalty

interests. To predict whether fracking will

result in land lease litigation in California, it is

helpful to review the experiences of other

states where fracking is common, particularly,

Pennsylvania.

A. Interpretation of Land Contracts

1. Pennsylvania

The Supreme Court of Pennsylvania

interprets oil and gas rights in existing land

deed contracts in a manner which best gives

effect to the original parties’ intentions. In

U.S. Steel Corp. v. Hoge, the court interpreted

the language of a coal severance deed from

1920 which granted a lessee the right to mine

coal, but reserved to the landowner “the right

to drill and operate through [the] coal for oil

and gas.”xlviii Noting this was a matter of first

impression, the Hoge court found that while

gas contained within the coal belonged to the

coal owner, the landowner had a right to

“anything surrounding the coal,” including

coalbed gas as it “migrates into the

surrounding property.”xlix The court reasoned

this interpretation reflected the original

parties’ intent when they entered into the

deed.l

More recently, the Pennsylvania

Supreme Court determined that a reservation

of “minerals” in a deed does not include the

right to frack natural gas. In Butler v. Charles

Powers Estate ex rel. Warren, the plaintiffs’

predecessors in title obtained a deed to the

land in 1881, which reserved “‘one-half [of]

the minerals and Petroleum Oils’” below the

surface to the grantor. li The plaintiffs in

Butler sought to quiet title to the property of

all (as opposed to one-half) of the minerals

contained beneath the property.lii Conversely,

the defendants sought declaratory relief that

the deed reservation included one-half of the

natural gas found beneath the property.liii The

trial court agreed with the plaintiffs, noting

that Pennsylvania law long recognized a

rebuttable presumption that “if, in connection

with a conveyance of land, there is a

reservation or an exception of ‘minerals’

without any specific mention of natural gas or

oil, … the word ‘minerals’ was not intended by

the parties to include natural gas or oil.”liv

The Pennsylvania Supreme Court affirmed the

trial court’s ruling, finding that it correctly

concluded that the parties’ private deed

reservation of minerals and petroleum oils did

not contemplate a reservation of natural gas.lv

In addition to interpreting prior deed

restrictions and their effect on existing gas

rights, the Pennsylvania Supreme Court has

dealt with the issue of whether delayed rental

payments under land leases entered into in

connection with fracking activities create

continuous extraction rights. In doing so, the

Pennsylvania Supreme Court decided that

delayed rental payments do not create a

continual right to extract oil and gas from

previously-leased property. lvi In Hite v.

Falcon Partners, a group of landowners

entered into leases with the defendant

company, granting it the right to drill and

extract natural gas and oil from their

properties.lvii The leases also contained

delayed rental provisions requiring the

company to pay a fee if it did not drill or

extract natural gas or oil from the property.lviii

The defendant did not conduct drilling

operations, but did pay two dollars per year as

delayed rental payments under the lease.lix

Later, other oil and gas companies

approached the plaintiffs and expressed

interest in developing the land.lx After

providing notice to the defendant, the

plaintiffs terminated their leases in accordance

with the provisions of the leases.lxi The

Pennsylvania Supreme Court held that the

defendant properly exercised its right under

the lease to defer production for the year-long

term of the lease. However, after the lease

expired, it could not retain an indefinite right

to the gas and oil by continuing to make

deferred rental payments.lxii

2. California

In California, general land lease issues

will likely become more prevalent as high-

volume fracking operations increase

throughout the state. California already has a

history tied to oil production and the mining of

other materials. It also has a history of

litigation over the interpretation of terms

within older land lease contracts and deeds.

Like the Pennsylvania Supreme Court,

in City of Manhattan Beach v. Superior Court,

the California Supreme Court held that the

intent of the original parties is what governs

the terms of a particular document.lxiii There,

the Redondo Land Company (the “RLC”)

acquired approximately 4,500 acres of

southern California property from Charles

Silent in 1887, situated in what is now the

City of Manhattan Beach (“the City”).lxiv In

1888, the RLC conveyed a portion of the

property to the Redondo Beach Railway

Company (the “railway”).lxv The deed

between the RLC and the railway provided

that the RLC and Charles Silent “remise[d],

release[d] and quit-claim[ed]” to the railway

“the right of way for the construction,

maintenance and operation of a Steam

Railroad.”lxvi The deed concluded with a

habendum clause: “To have and to hold all

and singular the rights aforesaid unto [the

railway] and its assigns and successors

forever, subject however to and upon the

terms and conditions aforesaid.”lxvii

The railway and its successors

continued operations on the property until

1982, when all rail activity ceased.lxviii The

railway’s successor leased the property to the

City in 1982, and eventually sold the property

in 1986.lxix In 1987, the RLC’s successors-in-

interest sought to quiet title to the property

and to claim damages for inverse

condemnation.lxx The trial court found for the

successors-in-interest, concluding that the

RLC had not conveyed a fee simple interest in

the property.lxxi Rather, the trial court found

that the RLC only conveyed an easement,

which terminated when the railway

discontinued railroad operations.lxxii

On appeal, the Supreme Court of

California opined that “[w]ith deeds as any

other contracts, ‘[t]he primary object of all

interpretation is to ascertain and carry out the

intention of the parties. All the rules of

interpretation must be considered and each

given its proper weight, where necessary, in

order to arrive at the true effect of the

instrument.’”.lxxiii The Supreme Court

considered the operative language of the

deed’s granting clause, wherein the RLC and

Charles Silent “remise[d], release[d] and quit-

claim[ed]” to the railway “the right of way for

the construction, maintenance, and operation

of a Steam Railroad”.lxxiv The court concluded

that the operative words used by the RLC are

the words commonly used in simple quitclaim

deeds.lxxv A “quitclaim deed transfers

whatever present right or interest the grantor

has in the property.”lxxvi The California

Supreme Court concluded that the phrase

“remise, release and quit-claim” in the

granting clause was not consistent with an

intent to convey only an easement to the

railway.lxxvii It reasoned that the RLC held the

property in fee simple, and that its choice to

execute a quitclaim deed, with its established

legal import, substantially reflected an

intention to convey title in its entirety.lxxviii

However, the City of Manhattan Beach

court ruled that the successors-in-interests’

claims could not rest on that factor alone.lxxix

It reiterated that “deeds are to be construed

like any other contract and the intent of the

parties” must be derived from considering the

whole instrument, not just detached

clauses.lxxx The California Supreme Court

found that the most significant counterpoint

was the deed’s multiple references to the

“right of way.”lxxxi Deeds conveying a “right of

way” to railroads are usually construed as

only giving a right of way–not a fee

simple.lxxxii The deed also stated that it was

“for the construction, maintenance and

operation of a steam railroad.”lxxxiii The

Supreme Court concluded that as with the

term “right of way,” in that instance reference

to the conveyance’s purpose tended to show

that the parties intended to convey an

easement, rather than a fee simple.lxxxiv

After consideration of a variety of

factors, including extrinsic evidence, the

Supreme Court of California concluded that

the RLC intended to convey the property to

the railway in fee simple, and did not intend

to transfer a lesser estate.lxxxv Given the

conflicting provisions of the deed, the court

reiterated the importance of careful drafting to

ensure property transactions consistent with

the parties’ intended and desired result.lxxxvi

The California Supreme Court applied

these traditional rules of contract/deed

interpretation when considering the effect of

delayed rental payments under an oil and gas

lease in Butler v. Nepple. There, the plaintiff

assigned his interest in an oil and gas lease to

the defendant for $15,000.lxxxvii The

assignment provided that if the defendant did

not commence drilling operations on the land

or reassign his rights within six months, he

would have to pay the plaintiff $3,000 per

month as a rental payment until drilling

operations commenced.lxxxviii Further, the

assignment prohibited the defendant from

deferring the commencement of drilling

operations by the rental payments for longer

than a one-year period.lxxxix One day prior to

the expiration of the six month period, the

defendant had a surveyor stake out the

location for a well.xc The next day, he moved

a portable rig onto the property, had a cellar

dug and shored with well planking, and had

twenty-five feet of conductor pipe set and

cemented.xci Once he completed this work,

the defendant did nothing further in relation

to drilling operations.xcii

After the expiration of the one-year

period provided for in the lease, the plaintiff

sought to recover six months of delayed rental

payments, arguing that the defendant failed

to commence drilling within the six-month

period required by the assignment.xciii The

trial court determined that the defendant’s

preparatory work on the leased property did

not constitute the “commencement of drilling

operations within the meaning and intent of”

the lease and the assignment, and awarded

judgment to the plaintiff for the delayed rental

payments. xciv

In determining whether the defendant

must pay the delayed rental payments, the

California Supreme Court stated that there are

two types of oil and gas lease provisions

providing for rental payments as an

alternative to the obligation to commence

drilling.xcv It categorized these lease

provisions as the “unless” type and the “drill

or pay” type.xcvi The California Supreme Court

explained that in the “unless” type, the lessee

automatically forfeits or terminates the lease

unless the lessee either drills or pays the

rental as provided in the lease.xcvii Conversely,

in the “drill or pay” type, the lessee does not

forfeit or terminate the lease by failing to

comply with its terms, but upon the failure to

drill or commence drilling as required under

the lease, the obligation to make rental

payments becomes absolute as an alternative

requirement.xcviii

In Butler, the California Supreme

Court determined that the assignment to the

defendant was clearly the “drill or pay”

type.xcix It concluded that the defendant

bound himself to one of three alternatives: (1)

to commence drilling within six months of the

assignment; or (2) to pay rental at the rate of

$3,000 per month; or (3) to reassign the

lease.c The California Supreme Court affirmed

the trial court’s finding that substantial

evidence supported the trial court’s

determination that the defendant did not

commence drilling as required by the lease,

and upheld the award to the plaintiff.ci

California courts will likely apply these

precedents to land lease issues raised in

fracking litigation, as the principles remain the

same.

B. Force Majeure Provisions

In addition to interpreting prior deed

restrictions and delayed rental payments in

existing oil and gas leases, New York courts

have considered the effect of force majeure

provisions in oil and gas leases upon fracking

activities.

1. New York

New York has a moratorium on high-

volume fracking, which has prompted

extensive litigation over land lease issues. In

Beardslee v. Inflection Energy, LLC, the

plaintiff landowners sought declaratory relief

that the oil and gas leases they entered into

expired based on the terms of the contracts.cii

The defendant oil and gas companies claimed

that the leases did not expire because New

York’s moratorium acted as a force majeure

event, extending the term of each lease for

the period of such moratorium.ciii The district

court found this argument unpersuasive

because the leases did not require the

defendants to carry out drilling operations.civ

Moreover, the court determined that New

York’s moratorium on high-volume fracking

did not frustrate the purpose of the oil and

gas leases because other traditional methods

of extraction were still available.cv Thus, the

court ruled that the leases had expired.cvi

The Northern District of New York also

considered the effect of the state’s fracking

moratorium on oil and gas leases in Wiser v.

Enervest Operating, L.L.C. In Wiser, each of

several plaintiffs entered into a virtually

identical oil and gas lease with the defendant

oil and gas corporation in 1999, permitting

exploration for and recovery of oil, gas, and

other hydrocarbons.cvii The leases provided

for payment of three dollars per acre as a

signing bonus, and established twelve and

one-half percent as the royalty rate for both

oil and gas.cviii Each lease was for a term of

ten years, but was subject to indefinite

extension as long as oil or gas was recovered

in paying quantities from the plaintiffs’

property.cix The leases also contained a

provision requiring delayed rental payments to

compensate the landowners for any lag in

drilling beyond ninety days from the date the

leases were signed, providing that the leases

would become null and void if drilling of a well

did not commence within that time frame

unless the defendant paid the landowners, in

advance, until work for the drilling of a well

commenced.cx The leases’ force majeure

clauses provided that in the event “drilling or

other operations [were] delayed or interrupted

by storm, flood, fire, or other acts of God,

war, rebellion, insurrection, riot, strikes,

differences with workmen or failure of carriers

to transport or furnish facilities for

transportation, or as a result of some law,

order, or regulation of the government, or as

a result of shortage in material or equipment,”

the time of such delay would not be counted

against the defendant oil and gas

corporation.cxi During the primary term of the

leases, the defendant did not drill any wells on

the leased properties; the only activity

conducted was seismic testing during the

early years of the leases.cxii Until December

2008, the defendant made the required

delayed rental payments to the plaintiffs in

advance of each lease year.cxiii

In 2008, the governor of New York

directed the Department of Environmental

Conservation (“DEC”) to undertake a formal

public environmental review process to update

its 1992 Generic Environmental Impact

Statement (“GEIS”) for the oil, gas and

solution mining program in New York.cxiv The

governor’s memorandum did not prohibit

horizontal or vertical drilling for oil and gas

utilizing conventional, low-volume, fracking,

and left open the possibility for any entity to

apply to the DEC for a permit allowing

horizontal drilling in the Marcellus Shale after

conducting a site-specific Environmental

Impact Statement.cxv

The defendant did not make any

delayed rental payments in 2009.cxvi Rather,

it contended that the governor’s 2008

memorandum effected a de facto moratorium

on high-volume fracking of the Marcellus

Shale, and therefore effected a force

majeure.cxvii The plaintiffs contended the

failure to make timely, advanced payments of

the delayed rentals during the primary terms

of the leases rendered the leases

automatically null and void, notwithstanding

the force majeure clause.cxviii

Plaintiffs sought a declaration that

their leases had expired due to expiration of

the ten-year primary terms, or alternatively,

that the leases became null and void upon the

defendant’s failure to make the required

delayed rental payments.cxix The defendant

counterclaimed, seeking a declaration that the

governor’s memorandum qualified as a force

majeure for purposes of the leases and

resulted in an extension of the primary lease

term until completion of the SGEIS process.cxx

The Northern District of New York

noted that “under the cardinal principle for

construction and interpretation of contracts in

New York, the intention of the parties

controls.”cxxi It reasoned that in general, the

purpose of a delay rental clause is to allow the

lessee to maintain the lease during the

primary term expressed in the habendum

clause without having to immediately

commence development.cxxii In accordance

with this intention, some courts have

interpreted delayed rental payments to be

limited to the primary term of the lease.cxxiii

The district court noted that delayed rental

clauses take varying forms, including what is

known as an “unless” clause, and determined

that the leases at issue were unquestionably

“unless” leases.cxxiv It found that the weight

of authority construing “unless” clauses favors

a finding that if the lessee failed to either drill,

or pay the rental on or before its due date,

the lease automatically terminates without

any further action of the part of the lessor.cxxv

Accordingly, the Wiser court held that

by the clear and unequivocal terms of the

leases at issue, as universally understood in

the oil and gas industry, the leases

automatically terminated in the event the

defendant failed to commence drilling of a well

or timely pay delayed rentals within the

primary terms of the leases.cxxvi Assuming the

governor’s memorandum triggered the force

majeure clause, the terms of the leases were

then extended indefinitely, which required the

defendant to continue making timely rental

payments in order to avoid termination.cxxvii

Therefore, the court concluded that because

the defendant failed to pay delayed rental

payments after the governor issued his

memorandum, the leases were null and

void.cxxviii

2. California

California courts have considered force

majeure provisions in oil and gas leases in

non-fracking contexts. In San Mateo

Community College District v. Half Moon Bay

Limited Partnership, the college district leased

184 acres in San Mateo County to an

individual “for the production of oil, gas and

other hydrocarbons.”cxxix Paragraph 2 of the

lease provided that the lease term was five

years, commencing in 1982 and ending in

1987, unless further extended.cxxx In 1986,

the parties amended paragraph 2 by adding

the following language: “except that lessee

may continue its operation past the

termination date as to each well producing or

being drilled at the time and in respect to

which lessee is not in default. Lessee’s right

to continued operation as to said well(s) shall

continue so long as such well(s) produce oil in

paying quantities.”cxxxi Further, paragraph 20

of the lease, which included the force majeure

clause, provided for both (a) the suspension

of the lessee’s obligations while the lessee

could not comply with those obligations by

reason of any law, and (b) the suspension of

drilling and producing operations while the

price of oil was below $20 per barrel or while

there was no market for oil.cxxxii

At the end of the lease term in 1987,

the lessee was not producing oil or gas on the

land.cxxxiii Consequently, the community

college district filed a quiet title action in 1995

against the lessee’s successors in interest.cxxxiv

The trial court found for the community

college district, concluding that the lease

expired in 1987 and that the lessee’s

successors in interest did not retain any

interest in the sole existing well on the

property.cxxxv On appeal, the lessee’s

successors in interest argued that the force

majeure clause excused the lessee’s failure to

produce oil or gas.cxxxvi Specifically, they

claimed that the conditions required to extend

the lease would have been met in 1987 but

for (1) regulations prohibiting the venting of

gas, (2) the price of oil, and (3) the lack of a

market, all of which constituted force majeure

events under the lease.cxxxvii

The appellate court determined that

the threshold question was whether the force

majeure clause in the lease, which could

suspend the lessee’s obligations, applied to

the conditions set forth in paragraph 2, or

whether it applied only to the lease

covenants. cxxxviii The lessee’s successors in

interest argued that the force majeure clause

applied to the conditions in paragraph 2 even

though the force majeure clause itself

expressly suspended only the lessee’s

“obligations,” a term normally used to refer to

lease covenants.cxxxix The appellate court

concluded that paragraph 2 did not

incorporate the force majeure clause by

reference and did not include any provision

that circumstances set forth in the force

majeure clause could excuse failure of the

condition precedent.cxl

In reaching this decision, the appellate

court reasoned that “it is a long-established

rule of law that any language in a deed,

subsequent to the granting and habendum

clauses [paragraph 2], may not modify, cut

down or control those clauses, unless such

clauses [granting and habendum] incorporate

the additional language by express

reference.”cxli It noted that if a lessee wishes

to “preclude a possible termination of [his]

valuable interest for unavoidable failure to

strictly comply with the conditions precedent

to continuation of his estate,” then the lessee

should employ care in drafting the lease to

“ensure that the language of the force

majeure clause covers contingencies which

affect conditions, as well as covenants,

implied and expressed.”cxlii The appellate

court cautioned that careless drafting might

“nullify the effectiveness of the clause as a

device for preventing the expiration of the

lease for failure to comply with the conditions

or limitation of the typical habendum

clause.cxliii Thus, the appellate court ruled that

because paragraph 2 did not contain either a

provision excusing failure of a condition

required to extend the lease term or a

provision incorporating the force majeure

clause by reference, the force majeure clause

did not modify or enlarge the lease term.cxliv

As a result, the lease terminated in 1987.cxlv

California courts can expect similar

disputes over force majeure provisions in oil

and gas leases as the fracking controversy

increases in California and mining comes to a

halt as a result. As seen in San Mateo

Community College District, a force majeure

provision’s applicability to conditions in a

lease, as well as the lessee’s obligations under

the lease, will depend on whether the

language of the force majeure provision

covers conditions, as well as covenants.

Practitioners should pay particular attention to

this issue when drafting oil and gas leases

containing force majeure provisions.

C. The Rule of Capture and Royalty

Payments

Based on challenges to fracking

activities in other states brought under

traditional property law doctrines, including

the rule of capture and royalty payments,

California courts can expect to see similar

challenges as fracking becomes more

prevalent in California.

1. Texas

Texas courts previously addressed

fracking activities under traditional property

law doctrines, including the rule of capture

and royalty payments. In Coastal Oil & Gas

Corp. v. Garza Energy Trust, the Supreme

Court of Texas considered whether fracking

that extended into another individual’s

property constituted a trespass for which the

owner could recover damages for “drained”

gas.cxlvi The Texas Supreme Court held that

the “rule of capture” barred recovery of

damages, but that the mineral lessors could

bring an action where subsurface trespass

resulted in “actual injury.”cxlvii

A Texas court of appeal reached a

similar conclusion in Vela v. Wagner & Brown,

Ltd. There, a group of land owners leased the

rights to a common underground gas reservoir

to the defendant.cxlviii One of the owners sued

the defendant for breach of its implied duty to

protect a well from “substantial drainage” as it

related to another well.cxlix The appellate

court affirmed the jury’s award of damages

and the trial court’s sanctions.cl

Therefore, while Texas courts have

not upheld trespass claims where a defendant

simply drained gas from neighboring property,

they have affirmed damages for “substantial

drainage” and indicated that damages are

available where subsurface trespass results in

“actual injury” to neighboring property.

2. California

While California case law discussing

the rule of capture within the oil and gas

context is somewhat sparse, some California

courts have recognized the doctrine. In

Pacific Gas & Electric Co. v. Zuckerman, a

California court of appeal explicitly discussed

the rule of capture as it applied to the

recovery of gas and explained that the rule

“provides that oil and gas become[s] the

personal property of whoever brings it to the

surface and reduces it to possession.”cli This

in turn depends on who owns rights to the

property on the surface and whether they

have the right to drill.clii This is especially

significant within the context of fracking

where wells can extend for several miles

below ground and beyond property lines. It is

possible that proponents of fracking may

pressure the California Legislature to change

the traditional rule of capture in light of

changes in mining technology.

V. PRIVATE TORT ACTIONS

In addition to general objections to

fracking under constitutional and contract law,

many believe fracking fluids threaten the

purity of groundwater and human health.

California litigants have, and will continue to,

pursue private tort actions against fracking

activities stemming from allegations of water

contamination and other environmental

concerns. Again, in assessing the likely

impact of these actions on fracking, it is

helpful to examine the experience of other

states with environmental litigation

surrounding fracking.

A. Pennsylvania

Several federal district courts in

Pennsylvania recently dealt with private tort

actions related to hydraulic fracturing.cliii In

Roth v. Cabot Oil & Gas Corp, property owners

sued oil and gas corporations after noticing

changes to the quality of water produced from

a nearby well.cliv The plaintiffs alleged a

number of private tort causes of action,

including violations of Pennsylvania’s

Hazardous Sites Cleanup Act, negligence,

private nuisance, strict liability, trespass,

inconvenience and discomfort, breach of

contract, and fraudulent misrepresentation.clv

The court dismissed their claims for trespass,

inconvenience and discomfort, and fraudulent

misrepresentation, but allowed the remaining

claims to continue.clvi

Similarly, in Berish v. Southwestern

Energy Production Company, a group of

residents brought suit after fracking

operations led to the contamination of water

wells, resulting in health problems and

lowered property values.clvii The plaintiffs

brought five tort causes of action, including

violation of Pennsylvania’s Hazardous Sites

Cleanup Act, negligence, private nuisance,

strict liability, trespass, and the creation of a

medical monitoring trust fund.clviii On the

defendants’ motion to dismiss, the court found

that the plaintiffs pled sufficient allegations for

strict liability, but dismissed their claims

seeking damages for emotional distress.clix

Finally, in Fiorentino v. Cabot Oil &

Gas Corporation, a group of property owners

brought claims against an oil and gas

company alleging that its fracking operations

caused a release of methane and natural gas

and other toxins, damaging their property and

contaminating their groundwater supply.clx

The plaintiffs alleged eight causes of action,

including violations of Pennsylvania’s

Hazardous Sites Cleanup Act, negligence,

private nuisance, strict liability, breach of

contract, fraudulent misrepresentation, and

the need for medical monitoring.clxi The

district court determined that the plaintiffs

pled sufficient claims for violations of

Pennsylvania’s Hazardous Sites Cleanup Act,

strict liability and for the need for medical

monitoring.clxii

As seen from the foregoing three

cases, the viability of various causes of action

under private tort law remains unclear in

Pennsylvania.

B. Texas

Texas courts have also considered

private tort claims involving fracking. The

mixed outcomes of those cases leave a similar

uncertainty under Texas law as to the viability

of private tort claims as a challenge to

fracking. In In re Lipsky, two homeowners

brought suit against a drilling company after

gas contaminated the water well.clxiii The EPA

conducted an investigation and determined

that the drilling company’s activities “caused

or contributed to the gas in the . . . water

well.”clxiv The homeowners sought damages

for negligence, gross negligence, and private

nuisance.clxv The defendant drilling company

counterclaimed for civil conspiracy, aiding and

abetting, defamation, and business

disparagement.clxvi On the plaintiffs’ motion to

dismiss, the court ordered the trial court to

dismiss the defendant’s civil conspiracy and

aiding and abetting claims, but left the

defamation and business disparagement

claims pending.clxvii The parties are still

litigating their respective claims against each

other.

In a second Texas case, Harris v.

Devon Energy Production Co., the defendant

oil company conducted fracking and drilling

near the plaintiffs’ land.clxviii The plaintiffs in

Harris alleged physical, intentional, and

voluntary emission of petroleum by-products

to their land and groundwater, trespass,

negligent contamination, and fraudulent

concealment of the dangers of drilling, and

nuisance.clxix In response, the defendant filed

a motion for partial dismissal.clxx The court

dismissed the fraud claim, but allowed the

other claims to proceed.clxxi The plaintiffs later

sought a dismissal without prejudice in

response to the defendant’s motion for

summary judgment, because “[e]ven though

testing showed toxic contamination in [their]

well water when [the] lawsuit was filed in

December 2010, recent testing showed that

the contamination [was] no longer at a toxic

level for human consumption.” clxxii

C. California

Because California courts recognize

private tort actions, which are common in

California, practitioners are sure to see similar

issues arise in future California fracking

litigation. California courts already addressed

at least one private tort action brought

against an oil and gas company for

contaminating local groundwater. In People

of California v. Kinder Morgan Energy

Partners, L.P., the State of California and the

City of San Diego sued an oil and gas

company for polluting and contaminating the

city’s groundwater.clxxiii The plaintiffs’ causes

of action included nuisance, negligence,

trespass, violations of the Business and

Professions Code, as well as health and safety

violations.clxxiv While this case illustrates the

applicability of these types of claims to

California, the court recently dismissed the

case on summary judgment because the

plaintiffs’ failed to satisfy the applicable

statutes of limitations.clxxv More cases are

sure to follow.

VI. CALIFORNIA ENVIRONMENTAL ACTS

AND REGULATIONS

A. California Environmental Quality Act

In addition to the common law issues

discussed above, challenges to fracking

activities will likely emerge under

environmental regulatory laws, particularly

the California Environmental Quality Act

(“CEQA”). Litigants in other states have

commonly brought claims against federal

agencies and private entities under the federal

National Environmental Policy Act (“NEPA”).

Like NEPA, CEQA expressly requires the

incorporation of environmental values into

governmental decision-making. CEQA

requires state and local agencies to analyze

and disclose the potential environmental

impacts of their decisions, and to minimize

significant adverse effects to the extent

possible.clxxvi

One of the primary differences

between NEPA and CEQA is the way the law

determines and later discusses significance in

environmental documents. NEPA utilizes

significance to determine whether the law

requires an environmental impact study

(“EIS”), or some lower level of

documentation. NEPA requires an EIS when

the proposed federal project as a whole has

the potential to “significantly affect the quality

of the human environment.”clxxvii The

determination of significance relies on context

and intensity.clxxviii NEPA evaluates the

magnitude of the impact only after a decision

to do an EIS is made. NEPA does not require

a statement of determination of significant

impacts in the initial environmental

documents.clxxix

Conversely, CEQA requires the agency

to specifically identify each “significant effect

on the environment” resulting from the

project and ways to mitigate those effects.clxxx

Just one significant effect on any

environmental resource will trigger the

preparation of an environmental impact report

(“EIR”). An EIR must disclose each and every

significant effect on the environment, and the

project owner must mitigate each such

significant impact if possible.clxxxi Moreover,

the CEQA Guidelines list a number of

mandatory findings of significance, which also

require an EIR. There are no types of actions

under NEPA that parallel the findings of

mandatory significance in CEQA.clxxxii

Because CEQA requires government

agencies to disclose every “significant effect”

upon the environment, California litigants are

likely to prefer to bring CEQA claims arising

from an agencies’ alleged failure to properly

consider the effects of fracking activities, over

NEPA claims. It is fair to predict that CEQA’s

stringent disclosure standard will make

fracking more difficult for oil and gas

companies in California than in other states.

B. Emerging Role of the Department of

Conservation’s Division of Oil, Gas, and

Geothermal Resources

Practitioners can also expect to see

challenges to fracking activities under

developing regulations by California’s

Department of Conservation’s Division of Oil,

Gas, and Geothermal Resources (“DOGGR”).

The California legislature formed DOGGR in

1915 to address the needs of state, local

governments, and industry by regulating

statewide oil and gas activities with uniform

laws and regulations.clxxxiii DOGGR supervises

the drilling, operation, maintenance, and

plugging and abandonment of onshore and

offshore oil, gas, and geothermal wells, and is

charged with preventing damage to (1) life,

health, property, and natural resources; (2)

underground and surface waters suitable for

irrigation or domestic use; and (3) oil, gas,

and geothermal reservoirs.clxxxiv DOGGR’s

programs include: well permitting and testing;

safety inspections; oversight of production

and injection projects; environmental lease

inspections; idle-well testing; inspection of

oilfield tanks, pipelines, and sumps;

hazardous and orphan well plugging and

abandonment contracts; and subsidence

monitoring.clxxxv

DOGGR does not currently require

notice of, or disclosures relating to,

fracking.clxxxvi However, it is actively working

on issuing fracking regulations and recently

released its “pre-rulemaking discussion draft”

in December 2012.clxxxvii DOGGR has

conducted five workshops so far this year to

hear public comments on its “discussion draft”

regulations prior to commencing the formal

rulemaking process.clxxxviii DOGGR’s draft

regulations include notice requirements for

fracking, prefracking testing and evaluation

activities, and monitoring requirements (both

before and after fracking operations), as well

as requirements for the storage and handling

of fluids associated with fracking. Specifically,

the draft regulations’ General Hydraulic

Fracturing Requirements dictate that fracking

operators should properly anchor fracking

holes, protect and seal water zones, seal

productive or corrosive zones, direct all

fracking fluids into the proper zones, test

wellbores’ mechanical integrity, and

understand all fracking fluids.clxxxix Next, the

regulations require disclosure of specified data

prior to the commencement of fracking.cxc In

addition to disclosure of delineated

information, the proposed regulations require

inspection (and in some cases, testing) of

casings, tubings, surface equipment, pumps,

cement, and specific wells, faults, and

geological formations, depending on the size

of the anticipated fracture length.cxci

The draft regulations also require

continuous monitoring of various fracking

parameters, such as surface injection

pressure, slurry rates, proppant

concentration, fluid rate, and annuli

pressures.cxcii Aside from actual fracking

monitoring, the proposed regulations establish

storage and handling requirements of fracking

fluids, and require monitoring of wells after

fracking.cxciii Several proposed regulations

require public disclosure of certain information

and clarify how and when trade secret

protection applies.cxciv

DOGGR’s proposed rules evoked a

strong reaction from a number of

environmentalists and politicians. In a written

statement, the Center for Biological Diversity

stated that the draft regulations “do little to

protect the state’s environment, wildlife,

climate and public health. California faces

huge environmental risks unless state officials

halt this dangerous fracking boom.”cxcv

Similarly, the Pacific Region Director of Food &

Water Watch commented that with its

proposed regulations, DOGGR proved it has

no intention to “move beyond the Wild West”

when it comes to fracking in California,

“leaving us at the mercy of the oil and gas

industry.”cxcvi While the next steps in

DOGGR’s rulemaking process are expected to

take several months, given environmentalists’

disapproval of the regulations, litigation over

the finalized regulations is sure to emerge as

fracking activities increase in California.

VII. FEDERAL STATUTORY CHALLENGES

TO FRACKING

While state laws such as CEQA may

prove the preferred basis for environmental

challenges to fracking, California can expect

an increase in federal statutory-based claims

against private entities and government

agencies under various federal statutes.

These federal statutes include NEPA, the

National Historic Preservation Act (“NHPA”),

the Federal Land Policy and Management Act

(“FLPMA”), the Endangered Species Act

(“ESA”), the Safe Drinking Water Act

(“SDWA”), the Clean Water Act (“CWA”), and

the Mineral Leasing Act of 1920 (“MLA”).cxcvii

Most commonly, fracking challenges have

been brought against the United States

Environmental Protection Agency (“EPA”) and

the Bureau of Land Management (“BLM”), with

many claims relating to the adequacy of

environmental impact assessments or

findings.

A. NEPA

Plaintiffs in both New Mexico and

California have brought a number of

challenges to fracking activities under

NEPA.cxcviii NEPA requires federal government

agencies to integrate environmental values

into their decision making process by

considering the environmental impacts of their

proposed actions and reasonable alternatives

to those actions.cxcix In New Mexico ex rel.

Richardson v. Bureau of Land Management,

the state of New Mexico and a coalition of

environmental organizations brought claims

under NEPA challenging the procedures by

which BLM adopted a Resource Management

Plan Amendment (“RMPA”) opening New

Mexico’s Otero Mesa to oil and gas

development.cc When surveyors discovered

natural gas in Otero Mesa, BLM decided to

amend its resource management plan (“RMP”)

to address possible oil, gas, and geothermal

development by oil and gas development

companies.cci In its draft EIS, BLM analyzed

two possible resource management schemes:

“Alternative A” and “Alternative B.”ccii It

selected Alternative A as its preferred

alternative as it placed fewer restrictions on

development.cciii Alternative A subjected

116,206 acres of the Otera Mesa and 16,256

acres of the adjoining Nutt Desert Grasslands

to a “no surface occupancy” (“NSO”)

provision, allowing surface disturbances only

within 492 feet of existing roads.cciv BLM

crafted this NSO restriction “t[o] protect

portions of the remaining desert grassland

community by minimizing habitat

fragmentation.”ccv

In its final EIS, BLM chose a modified

version of the plan.ccvi The modified version

(“Alternative A-modified”) differed in one

crucial respect from Alternative A. Rather

than limiting surface disturbances to areas

within 492 feet of existing roadways,

Alternative A-modified would instead limit

disturbances to any 5% of the surface area of

a leased parcel at a given time, regardless of

location.”ccvii With the modified alternative,

BLM opened up the majority of the Otero

Mesa to fracking.ccviii The State of New Mexico

and various environmental organizations

challenged the substantive adequacy of the

final EIS under NEPA, alleging that BLM’s

failure to complete a supplemental EIS

specifically analyzing the likely environmental

effects of Alternative A-modified was arbitrary

and capricious.ccix

Courts review an agency’s NEPA

compliance to see whether it is “arbitrary,

capricious, an abuse of discretion, or

otherwise not in accordance with the law.”ccx

When called upon to review factual

determinations made by an agency as part of

its NEPA process, short of a “clear error of

judgment,” courts ask only whether the

agency took a “hard look” at information

relevant to the decision.ccxi

At the district court level, the plaintiffs

alleged that the final EIS “fail[ed] to

adequately analyze the potential impacts of oil

and gas development on the Salt Basin

aquifer, lack[ed] any analysis of the

fragmentation effects of oil and gas

development, [gave] insufficient consideration

to the effects of seismic exploration activity,

and utilize[d] a false assumption that

reclamation [could] be successful in the

Chihuahuan desert grasslands.”ccxii While

BLM’s final EIS included a discussion of the

impact of oil and gas on groundwater, and

recognized that contamination could occur due

to hydraulic fracturing, it concluded that the

likelihood of such contamination was small.ccxiii

The plaintiffs disagreed, arguing that

contamination of an aquifer was a “virtual

certainty” because contaminated water

produced by the oil and gas activity would be

injected in the Salt Basin aquifer.ccxiv The

district court concluded that BLM did not

abuse its discretion by acknowledging the

potential for contamination and determining

the probability was small.ccxv

On appeal, the Tenth Circuit

concluded that the district court

misapprehended the nature of the State’s

claims by viewing its challenge as a “simple

disagreement with BLM’s substantive

conclusions.”ccxvi The appellate court

concluded that the State was not asking the

court to decide whether BLM was correct that

the impacts would be minimal; rather, the

State sought to ensure that BLM’s conclusions

were based on NEPA’s requisite “hard look”

standard.ccxvii Overall, the appellate court

found that the record did not support BLM’s

findings that the impact of oil and gas on

groundwater would be minimal.ccxviii It

determined that there was no evidence of the

quantity of wastewater a natural gas well

produces, whether wells in the area were

“typical,” or whether drillers could dispose of

wastewater by evaporation.ccxix Instead,

evidence on the record supported the State’s

contention that “nontrivial impacts” were

possible.”ccxx The appellate court concluded

that BLM acted arbitrarily “by concluding

without apparent evidentiary support that

impacts on the Aquifer would be minimal,” but

did not prevent BLM from reaching the same

determination if it found a sufficient

evidentiary basis for doing so.ccxxi

B. Recent California NEPA Decision

In March of 2013, a California federal

district court judge issued the first major

ruling in a California fracking lawsuit, finding

that BLM failed to adequately consider the

risks presented by fracking in its issuance of

oil and gas leases on federal lands. In Center

for Biological Diversity v. Bureau of Land

Management, the plaintiffs brought claims for

declaratory and injunctive relief against BLM

for its sale of four oil and gas leases for

approximately 2,700 acres of federal land in

Monterey and Fresno Counties.ccxxii The

plaintiffs claimed BLM’s leases violated NEPA

because they inadequately accounted for the

environmental impacts of fracking.ccxxiii BLM

argued that its obligation to conduct NEPA

analysis had not yet accrued. BLM further

contended that even if it had such an

obligation, it satisfied that obligation by

conducting an environmental assessment

(“EA”) and finding the proposed action carried

no significant environmental impact requiring

a full EIS.ccxxiv

The Northern District concluded that

BLM’s EA unreasonably limited its

environmental analysis of the lease sale by

projecting that the lease would drill only one

well across the four parcels leased.ccxxv It

found that while this limitation may have been

reasonable in the past, the record before the

agency demonstrated that it was not

reasonable at the time BLM issued the

leases.ccxxvi The court determined that rather

than considering what impact might result

from fracking on the leased lands, BLM chose

simply to ignore it, claiming that “th[o]se

issues [were] outside the scope of [the] EA

because they [were] not under the authority

or within the jurisdiction of the BLM.”ccxxvii The

court disagreed, questioning how the issue of

the environmental impact of fracking could lie

outside BLM’s ‘jurisdiction’ when NEPA plainly

assigns all studying of environmental impacts

of BLM’s own decision to BLM.ccxxviii Put

another way, the court reasoned, “if not

within the BLM’s jurisdiction, then

whose?”ccxxix

The Northern District concluded that

BLM acted unreasonably in categorically

refusing to consider an effect that bore a

“reasonably close causal relationship” to the

action at issue.ccxxx Ultimately, the court

found that BLM’s dismissal of any

development scenario involving fracking as

“outside of its jurisdiction” simply did not

provide the “hard look” at the issue that NEPA

requires.ccxxxi Possible avenues of relief

included enjoining further surface-disturbing

activity pending EIS analysis, or invalidating

the improperly-granted leases.ccxxxii Rather

than guess at the appropriate remedy, the

court ordered the parties to meet and confer

and to submit an appropriate judgment.ccxxxiii

VIII. CONCLUSION

Fracking activities are rapidly

increasing in California. As fracking becomes

more widespread, practitioners should expect

to see a drastic increase in fracking-related

litigation. The issues and cases addressed in

this article provide some framework for the

types of challenges both proponents and

opponents of fracking are likely to bring in

California.

To recap, California may see an

increase in localized zoning and other

regulations passed to regulate fracking in

response to opponents concerns. Oil and gas

companies seeking to pursue fracking will

likely bring preemption and other

constitutional challenges to these local

regulations. However, because the California

legislature has previously expressed an intent

that local governments continue to enact laws

and regulations regulating oil production,

preemption challenges are unlikely to

succeed. Litigation over land lease issues is

also likely to increase, raising issues of

interpretation of land lease contracts, the role

of delayed rental payments and force majeure

provisions on the continued terms of land

lease contracts, as well as the implications of

traditional property doctrines such as the rule

of capture and royalty payments on land lease

contracts for oil and gas mining. California

courts should also expect an increase in

private tort actions arising from environmental

issues created by fracking activities. Litigants

have, and will continue to, pursue private tort

actions against oil and gas companies where

fracking activities allegedly threaten the purity

of groundwater, human health, and perhaps

even seismic stability. Finally, opponents of

fracking will likely bring challenges under

CEQA and DOGGR’s future fracking

regulations, as well as various federal

environmental statutes, including NEPA.

Given the public’s increasing focus on

fracking, oil and gas companies should expect

a variety of challenges as they attempt to

frack California.

i Dep’t of Conservation, Hydraulic Fracturing in

California, CA.GOV, available at

http://www.conservation.ca.gov/dog/general_information/

Pages/HydraulicFracturing.aspx. ii The NY Times, Fracking: How Risky For Us?, available

at http://articles.latimes.com/2013/may/26/opinion/la-ed-

fracking-legislation-california-20130526. iii Michael Kiparsky & Jayni Foley Hein, Regulation of

Hydraulic Fracturing in California: A Wastewater and

Water Quality Perspective, available at

http://blogs.berkeley.edu/2013/04/12/hydraulic-fracking-

in-california-new-report-addresses-potential-water-

impacts. iv See supra note 2. v See supra note 1. vi Center for Biological Diversity, Fracking in California,

available at

http://www.biologicaldiversity.org/campaigns/california_f

racking/faq.html. vii Josie Garthwaite, Monterey Shale Shakes Up

California’s Energy Future, Nat’l Geographic,

http://news.nationalgeographic.com/news/energy/2013/05/

130528-monterey-shale-california-fracking. viii Clean Water Action, Fracking in California, available

at http://www.cleanwateraction.org/fracking-california. ix See supra note 7. x See supra note 6. xi The Wall Street Journal, Fracturing in California,

available at

http://online.wsj.com/article/SB100014241278873247670

04578488821344316236.html. xii See supra note 6. xiii Norse Energy Corp. USA v. Town of Dryden, 964

N.Y.S.2d 714 (2013). xiv Cal. Pub. Res. Code § 3690. xv Norse Energy Corp., 964 N.Y.S.2d at 716. xvi Id. at 718. xvii Id. xviii Id. xix Id. xx Id. at 719. xxi Id. xxii Id. xxiii Id. xxiv Id. xxv Id. at 724. xxvi Robinson Twp. v. Com. of Pa., 52 A.3d 463, 468

(2012). xxvii Id. xxviii Id. at 468, 480. xxix Id. at 480. xxx Id. at 479. xxxi Id. at 482. xxxii Id. at 483. (emphasis in original). xxxiii Id. (emphasis in original); (citing In re Realen Valley

Forge Greenes Assoc., 576 Pa. 115, 131 (2003)). xxxiv Id. xxxv Id; See Huntley & Huntley, Inc. v. Borough Council of

Borough of Oakmont, 600 Pa. 207, 222-24 (2009). xxxvi Id. at 484. xxxvii Id. xxxviii Id. xxxix Id. xl Id. at 485. xli Valley Vista Serv. Inc. v. City of Monterey Park, 118

Cal. App. 4th 881 (2004). xlii Action Apartment Ass’n, Inc. v. City of Santa Monica,

41 Cal. 4th 1232 (2007). xliii Tily B., Inc. v. City of Newport Beach, 69 Cal. App. 4th

1 (1998). xliv Pers. Watercraft Coal. v. Bd. of Supervisors, 100 Cal.

App. 4th 129 (2002). xlv Cal. Pub. Res. Code § 3640. xlvi Id. at § 3609. xlvii Id. at § 3690 xlviii U.S. Steel Corp. v. Hoge, 503 Pa. 140, 143-44 (1983). xlix Id. at 145, 147. l Id. at 149-50. li Butler v. Charles Power Estate ex rel. Warren, 65 A.3d

885, 886 (2013). lii Id. at 887. liii Id. liv Id. at 888. lv Id. at 899. lvi Hite v. Falcon Partners, 13 A.3d 942, 949 (2011). lvii Id. at 944. lviii Id. lixId. lx Id. lxi Id. lxii Id. at 949.

lxiii City of Manhattan Beach v. Super. Ct., 13 Cal. 4th 232,

238 (1996). lxiv Id. at 235. lxv Id. at 236. lxvi Id. lxvii Id. at 236-37. lxviii Id. at 237. lxix Id. lxx Id. lxxi Id. lxxii Id. lxxiii Id. at 238. lxxiv Id. at 238-39. lxxv Id. at 239. lxxvi Id. (citing Westlake v. Silva, 49 Cal. App. 2d 476, 478

(1942)). lxxvii Id. lxxviii Id. lxxix Id. at 240. lxxx Id. lxxxi Id. lxxxii Id. lxxxiii Id. at 243. lxxxiv Id. lxxxv Id. at 249. lxxxvi Id. at 250. lxxxvii Butler v. Nepple, 54 Cal. 2d 589, 592 (1960). lxxxviii Id. lxxxix Id. xc Id. at 593. xci Id. xcii Id. xciii Id. at 592. xciv Id. at 593. xcv Id. at 594. xcvi Id. xcvii Id. xcviii Id. xcix Id. c Id. ci Id. at 598-99. cii Beardslee v. Inflection Energy, LLC, 904 F.Supp.2d

213, 215 (N.D.N.Y. 2012). ciii Id. civ Id. at 220. cv Id. cvi Id. at 215. cvii Wiser v. Enervest Operating, LLC, 803 F.Supp.2d 109,

112 (N.D.N.Y. 2011). cviii Id. at 112-13. cix Id. at 113. cx Id. cxi Id. cxii Id. at 114. cxiii Id. cxiv Id. cxv Id. at 113-14. cxvi Id. at 114. cxvii Id. cxviii Id. cxix Id. at 115. cxx Id.

cxxi Id. (citing SR Int’l Bus. Ins. Co. v. World Ctr. Props.,

LLC, 467 F.3d 107, 125 (2d Cir. 2006)). cxxii Id. at 118. cxxiii Id. (citing Hite, 13 A.3d at 946-48; Jacobs v. CNG

Transmission Corp., 332 F.Supp.2d 759, 785 (W.D. Pa.

2004)). cxxiv Id. at 118-19. cxxv Id. cxxvi Id. at 120. cxxvii Id. at 121-22. cxxviii Id. at 126. cxxix San Mateo Cmty. College Dist. v. Half Moon Bay Ltd.

P’ship, 65 Cal. App. 4th 401, 405 (1998). cxxx Id. cxxxi Id. at 405-06. cxxxii Id. at 406-07. cxxxiii Id. at 408. cxxxiv Id. cxxxv Id. cxxxvi Id. at 410. cxxxvii Id. cxxxviii Id. cxxxix Id. at 411. cxl Id. at 412. cxli Id.; (citing Kirker v. Shell Oil Co., 104 Cal. App. 2d

497, 503 (1951)). cxlii Id. at 411 (citing Sheinberg, The Force Majeure

Clause: A Tool For Mitigating the Effect of the

Determinable Fee Concept of the Modern Oil and Gas

Lease, 6 UCLA L.Rev. 269 (1959)). cxliii Id. cxliv Id. at 413. cxlv Id. cxlvi Coastal Oil & Gas Corp. v. Garza Energy Trust, 268

S.W.3d 1, 4 (2008). cxlvii Id. at 4-5. cxlviii Vela v. Wagner & Brown, Ltd., 203 S.W.3d 37, 44

(Tex. App. 2006). cxlix Id. cl Id. at 62; See also Chevron U.S.A., Inc. v. Guerra, No.

M-06-307, 2007 WL 2710839, at *1 (S.D. Tex. Sept. 13,

2007) (dealing with royalty interests and the rule of

capture). cli Pac. Gas & Elec. Co. v. Zuckerman, 189 Cal. App. 3d

1113, 1137 (1987). clii Id. cliii See Roth v. Cabot Oil & Gas Corp., No. 3:12-cv-898,

2013 WL 358176 (M.D. Pa. Jan. 30, 2013). cliv Id. at *3-5. clv Id. at *5. clvi Id. at *19. clvii Berish v. Sw. Energy Prod. Co., 763 F.Supp.2d 702,

703-04 (M.D. Pa. 2011). clviii Id. clix Id. at 706. clx Fiorentino v. Cabot Oil & Gas Corp., 750 F.Supp.2d

506, 507-09 (M.D. Pa. 2010). clxi Id. at 507. clxii Id. at 516. clxiii In re Lipsky, No. 02-12-00348-CV, 2013 WL

1715459, at *1 (Tex. App. Apr. 22, 2013). clxiv Id.

clxv Id. at *1-2. clxvi Id. clxvii Id. at *17 clxviii Harris v. Devon Energy Prod. Co., No. 4:10-CV-708,

2011 WL 2729242, at *1 (E.D. Tex. June 14, 2011). clxix Id. clxx Id. clxxi Id. at *3. clxxii Case 4:10-cv-00708-MHS-ALM, 12/29/11 clxxiii People of Cal. v. Kinder Morgan Energy Partners,

L.P., 569 F.Supp.2d 1073, 1078-79 (S.D. Cal. 2008). clxxiv Id. at 1078. clxxv See Cal. v. Kinder Morgan Energy Partners, L.P., No.

07-CV-1883-MMA(WVG), 2013 WL 314825, at *35

(S.D. Cal. Jan. 25, 2013). clxxvi NEPA and CEQA: Integrating State and Federal

Environmental Reviews, available at

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm

=1&source=web&cd=1&ved=0CDQQFjAA&url=http%3

A%2F%2Fceq.hss.doe.gov%2Fpublications%2FNEPA_C

EQA_Draft_Handbook_March_2013.pdf&ei=YoXUUZS

uB6O_igKi64CABw&usg=AFQjCNFLeMjale_-

tDxXT1V1SmWBrGizvw&sig2=EvMPAKI-

jhnEE8MetNR_BQ&bvm=bv.48705608,d.cGE. clxxvii Dep’t of Transportation, Preparing Joint

NEPA/CEQA Documentation, CA.GOV, available at

http://www.dot.ca.gov/ser/vol1/sec6/ch37joint/chap37.htm

#PolicyMemos. clxxviii Id. clxxix Id. clxxx Id. clxxxi Id. clxxxii Id. clxxxiii Dep’t of Conservation, Oil, Gas & Geothermal –

About Us, CA.GOV, available at

http://www.conservation.ca.gov/dog/Pages/aboutUs.aspx. clxxxiv Id. clxxxv Id. clxxxvi See supra note 1. clxxxvii Dep’t of Conservation, Oil, Gas & Geothermal,

CA.GOV, available at

http://www.conservation.ca.gov/dog/Pages/Index.aspx. clxxxviii Id. clxxxix Discussion Draft of Regulations – Hydraulic

Fracturing, CA.gov, § 1782 (Dec. 2012), available at

http://www.conservation.ca.gov/index/Pages/hfrk-

discussiondraft.aspx. cxc Id. at § 1783. cxci Id. at § 1784. cxcii Id. at § 1785. cxciii Id. at §§ 1786-87. cxciv Id. at § 1788. cxcv Mike Flores & Olman J. Valverde, Esq., An Analysis

of DOGGR’s Draft Fracking Regulations, available at

http://www.caloilgas.com/doggr-draft/. cxcvi Id. cxcvii See Tex. Oil & Gas Ass’n v. U.S. E.P.A., 161 F.3d

923 (5th Cir. 1998); Legal Envtl. Assistance Found., Inc.

v. U.S. E.P.A., 118 F.3d 1467 (11th Cir. 1997). cxcviii See N.M. ex rel. Richardson v. Bureau of Land

Mgmt., 565 F.3d 683 (10th Cir. 2009); N.Y. v. U.S. Army

Corps. of Eng’rs, 896 F.Supp.2d 180 (E.D. N.Y. 2012);

Center for Biological Diversity v. Bureau of Land Mgmt.,

No. C 11-06174 PSG, 2013 WL 1405938, at *1 (N.D. Cal.

Mar. 31, 2013). cxcix U.S. Environmental Protection Agency,

http://www.epa.gov/compliance/nepa/. cc N.M. ex rel. Richardson, 565 F.3d at 688. cci Id. ccii Id. at 690. cciii Id. cciv Id. ccv Id. ccvi Id. at 692. ccvii Id. ccviii Id. at 688. ccix Id. at 705. ccx Id. at 704; 5 U.S.C. § 706(2)(a). ccxi Id.; See Citizens’ Comm. to Save Our Canyons v.

Krueger, 513 F.3d 1169, 1178 (10th Cir. 2008). ccxii N.M. ex rel. Richardson v. Bureau of Land Mgmt., 459

F.Supp.2d 1102, 1114 (D. N.M. 2006). ccxiii Id. ccxiv Id. ccxv Id. ccxvi N.M. ex rel Richardson, 565 F.3d at 714. ccxvii Id. ccxviii Id. at 715. ccxix Id. at 714. ccxx Id. ccxxi Id. at 715. ccxxii Center for Biological Diversity, 2013 WL 1405938,

at *1. ccxxiii Id. at *1, *7. ccxxiv

Id. at *7. ccxxv

Id. at *10 ccxxvi

Id. ccxxvii

Id. ccxxviii

Id. ccxxix

Id. ccxxx

Id. ccxxxi

Id. at *13. ccxxxii

Id. ccxxxiii

Id.