According to the U.S. Department of Energy’s Geological Survey, shale formations in the United States hold trillions of barrels of oil and trillions of cubic feet of natural gas. The Marcellus Shale and the Utica Shale (located a few thousand feet below the Marcellus Shale, which is larger and thicker), covering much of the Eastern United States, constitute the largest deposit. As energy companies tap these vast resources using a process called hydrofracking, like any new venture of this type, it will attract questions about safety and concerns about pollution.
Briefly, hydraulic fracturing – or “hydrofracking” – involves drilling first a vertical well then a horizontal well, going deep below the surface under the shale rock formations, then injecting a pressurized solution of water, sand and chemicals to loosen the shale and release the gas. This is achieved by lowering a so-called “perforation gun” to the bottom of the well. When fired, the gun produces micro-fractures in the shale, releasing the trapped gas, which flows under natural pressure up the well pipe to the surface.
The Litigation Horizon
As with any human endeavor, progress brings with it a new set of potential liabilities. Hydrofracking in the Marcellus Shale is no exception. Some commentators have called it the “next asbestos.”
In defending against Marcellus Shale–related litigation, it is critically important for in-house counsel to ask these questions: Who are the plaintiffs and defendants likely to be? What entities are they likely to target as defendants, and what defenses can be raised?
The answers can enable in-house counsel to marshal the corporate resources needed to develop an effective “game plan” for defending against suits in this emerging liability area. This article provides an overview of these issues and offers some preliminary guidance and insight to counsel who may have to defend against Marcellus Shale–related suits.
Categories of potential plaintiffs in Marcellus Shale litigation include environmental citizens groups, municipalities and individual citizens.
Among the many potential defendants in Marcellus Shale litigation are energy and drilling companies; designers and manufacturers of drilling and well-related equipment, including well pads; waste transporters and waste storage companies; states, counties, and municipalities; insurance companies (subject to direct action under the New York Navigation Law); and various federal, state, and county agencies and municipalities. As the owners of property on which drilling operations are occurring, landowners – including individual homeowners – are another class of potential defendants. They face vicarious liability for any damage that the drillers may cause.
To date, no litigation has been brought against the designers and manufacturers of drilling- and well-related equipment. Nevertheless, if experience in other litigation areas is any guide, product liability suits may be pursued against these entities, premised on theories of design and/or manufacturing defects as well as failure to warn. Waste haulers and waste storage companies are also potentially in the crosshairs of this litigation as the entities responsible for transporting and disposing of the waste water that was injected into the shale to cause the fracking. This waste water contains contaminants, including the chemicals injected into the shale as well as heavy metals, brines, and other byproducts generated from close contact with the shale. It needs to be handled in a safe manner, invoking a technical process that exposes these types of businesses to potential suits.
Engineering consultants are another potential category of defendants. They may have provided advice regarding the placement of the well pads and cement casings around the well boring. Consultants who provide advice during the planning stages of the construction of a drilling site may become potential litigation targets – depending on how far down the chain a litigant wants to pursue.
Drilling operators could also face environmental class action lawsuits brought by large groups of allegedly “similarly situated” Marcellus Shale plaintiffs. Plaintiffs who allegedly suffered similar injuries could try to bring one major lawsuit, seeking certification as an identifiable Marcellus Shale “class.”
Defenses Available to Defendants
It is important for in-house counsel to be aware of the defenses available in Marcellus Shale–related suits.
Contributory/Comparative Negligence and Causation
Contributory/comparative negligence allows a jury to consider the plaintiffs’ own negligence (involvement) in bringing about the claimed damages. Plaintiffs have had trouble proving causation; that is, linking the drilling to their claimed damages. Plaintiffs must demonstrate that the contaminant to which they have been exposed has been identified as a potential cause of alleged illness or disease.
Where appropriate, in-house counsel should take steps to ensure that their companies are complying with any applicable regulations and permit requirements. Doing so will make cases based on statutory claims or common law theories –particularly negligence per se, typical negligence and nuisance cases—difficult to prove.
To bring citizen suit claims under most federal and state statutory provisions, potential plaintiffs must satisfy various notice and other procedural requirements and demonstrate that the particular environmental agency is not diligently pursuing enforcement. Defendants confronting potential citizen suit litigation may be able to preclude these actions by negotiating an administrative consent agreement with the regulatory agency to establish a corrective action program.
Medical Monitoring Defenses
To effectively defend against medical monitoring claims, the defendant needs to attack one or more of the seven recognized elements of proof: (1) exposure greater than normal background levels (2) to a proven hazardous substance (3) caused by the defendant’s negligence and (4) as a proximate result of exposure, (5) plaintiff has a significantly increased risk of contracting a serious latent disease, and (6) a monitoring procedure exists that makes the early detection of the disease possible and (7) the prescribed monitoring regime is different from that normally recommended in the absence of the exposure and the prescribed monitoring regime is reasonably necessary according to contemporary scientific principles. If a defendant can refute any one of these elements, a medical monitoring claim will not succeed.
Admissibility of Expert Opinions
Another area of concern for in-house counsel is, of course, the admissibility of expert opinions. The U.S. Supreme Court articulated the standard for determining the admissibility of expert opinions in federal cases in its landmark opinion in Daubert v. Merrell Dow Pharmaceuticals. The Daubert standard requires the court to examine whether scientific evidence will assist the trier of fact and whether the evidence is the product of reliable and scientifically valid methodology. Further, in-house counsel for defendants should consider retaining expert witnesses to attack the merits of plaintiffs’ suits.
Other potential defenses that should be considered are contractual in nature, including indemnity and defense, statute of limitations, impossibility and unconscionable terms.
On the legislative front, at least one state, Vermont, has banned hydrofracking altogether. In New Jersey, faced with a veto threat from the governor, the legislature retreated from legislation totally banning hydrofracking in exchange for a one-year ban. In New York, a moratorium on new hydrofracking continues to be in effect while supporters and proponents of the process remain locked in a battle as to whether, and to what extent, it should be allowed.
In other states that allow hydrofracking, steps are being taken to actively regulate drilling. These states have either passed or are considering legislation requiring energy companies to disclose constituent ingredients and chemicals used in hydrofracking operations.
At the national level, the National Fracturing Responsibility and Awareness of Chemicals Act (FRAC Act) was re-introduced in both houses of the 112th United States Congress and remains in committee.
In spite of the apparent environmental risks associated with hydrofracking, it appears that drilling for natural gas using the hydrofracking process is here to stay. It will change the energy landscape – where we get our energy – and it will significantly reduce our dependence on foreign oil. There are huge dollar amounts at stake.
Litigation surrounding Marcellus Shale drilling is just beginning. New cases and hydrofracking issues arise almost daily. Thus, it will be left to the courts and the regulators to shape the hydrofracking landscape.