Swift Energy Operating, LLC v. Regency Field Services LLC, Regency Energy Partners LP, Regency GP LP, and Regency GP LLC ( 2019 )

Fourth Court of Appeals
San Antonio, Texas
MEMORANDUM OPINION
No. 04-17-00638-CV
SWIFT ENERGY OPERATING, LLC,
Appellant
v.
REGENCY FIELD SERVICES LLC, Regency Energy Partners LP, Regency GP LP, and
Regency GP LLC,
Appellees
From the 343rd Judicial District Court, McMullen County, Texas
Trial Court No. M-14-0029-CV-C
Honorable Janna K. Whatley, Judge Presiding
Opinion by: Patricia O. Alvarez, Justice
Concurring and Dissenting Opinion by: Rebeca C. Martinez, Justice
Sitting: Rebeca C. Martinez, Justice
Patricia O. Alvarez, Justice
Luz Elena D. Chapa, Justice
Delivered and Filed: April 10, 2019
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
Appellant Swift Energy Operating, LLC sued Appellees for damage to its leased minerals
allegedly caused by H2S/CO2 injectate spreading from Appellees’ nearby injection well. Appellees
asserted a statute of limitations affirmative defense, and both sides moved for summary judgment.
Because Appellees conclusively established their affirmative defense only to Swift’s PCQ lease
claims, we affirm the trial court’s order in part, reverse it in part, and remand this cause.
04-17-00638-CV
BACKGROUND
This case concerns damage caused by the underground spread of H2S/CO2 gas from an
injection well. The damages Swift seeks pertain to its leases near Appellees’ injection well in
McMullen County.
A. Swift’s PCQ Lease
In 2009, Swift and Leo O. Quintanilla entered into a lease (the PCQ lease) for minerals
underlying much of Quintanilla’s ranch. The PCQ lease covers most depths below 2,000 feet for
over 4,200 acres of the approximately 4,271-acre Quintanilla ranch. Swift’s leased depths include
some depths in the Olmos and Eagle Ford formations.
B. Swift’s Other (Non-PCQ) Leases
Swift has other leases in the area, some contiguous, some not, to the PCQ lease. 1 Swift’s
PCQ lease and its eight other (non-PCQ) leases are all near Appellees’ injection well.
C. Regency’s Injection Well
Appellees are Regency Field Services LLC, Regency Energy Partners LP, Regency GP LP,
and Regency GP LLC (collectively Regency). In 2006, Regency sought permission from the
Texas Railroad Commission (RRC) to allow Regency to operate an injection well (the Tilden
Injection Well) in McMullen County to dispose of a gaseous mixture of concentrated hydrogen
sulfide (H2S) and carbon dioxide (CO2). 2 Regency sought to pump the H2S/CO2 mixture, the
injectate, into the Wilcox formation.
1
Swift’s other (non-PCQ) leases include the following: the Bracken Lease, the Chew Lease, the FB Horton Lease, the
Gonzales Lease, the Henry (Olmos) Lease, the Henry (Eagle Ford) Lease, the McClaugherty LS Lease, and the
Quintanilla Me-You Lease.
2
At sufficient concentrations, the gaseous mixture is fatal to humans and is highly corrosive to metals commonly used
in oil and gas production. The injectate at issue is approximately 34% H2S, 64% CO2, and 2% natural gas.
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In its permit application, Regency submitted a plume model that predicted the injectate
would spread horizontally by about 2,200 feet after forty years of injection.
The RRC Examiner’s Report, issued in response to Regency’s permit application, states
there is “at least 250 feet of shale overlying the disposal interval and at least 100 feet of shale
below the disposal interval. These shale barriers will prevent the [vertical] migration of acid gas
from the disposal zone.” The RRC approved Regency’s plan to use H2S resistant materials, such
as stainless steel, for the injection well and the RRC issued the permit for the Tilden Injection
Well. In February 2012, the RRC approved an increased disposal rate. Regency’s revised model
predicted a horizontal spread of 2,900 feet after thirty years of injection.
D. JCB Horton #1 Well Contamination
In August 2012, Layline Petroleum was operating the JCB Horton #1 well. The JCB
Horton #1 well is located on the Quintanilla ranch, and is about 3,300 feet northeast of the Tilden
Injection Well. That August, Layline detected H2S in the JCB Horton #1 well; the H2S was tested
and determined to have originated from Regency’s Tilden Injection Well.
Although the plume was not predicted to spread to the JCB Horton #1 well even after thirty
years of injection, in 2012, Layline had to plug and cap its JCB Horton #1 well because of the H2S
contamination from Regency’s injectate.
E. Layline’s Notice to Swift of Spreading H2S Plume
On October 23, 2012, Layline’s Aaron Brougher e-mailed Swift’s Richard Kimberlin with
this message:
Subject: McMullen County H2S outbreak
Hi, Richard:
Layline Petroleum is an offset operator of yours in McMullen County. I believe
you have some of the deep rights where we have Olmos operation on the main
Quintanilla Ranch.
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Regency has an H2S injection well just to our west that has exceeded their permit
and have forced us to plug a producing well. It looks as though Swift has 2
horizontal wells permitted in the area and the bottom hole locations seem very near
this injection well.
Later the same day, Swift’s Bob Redweik responded to Layline’s Aaron Brougher with this
request:
Subject: H2S BREAK OUT FROM INJECTION WELL IN McMULLEN
COUNTY
Can you provide me some additional details including our permitted well names
which could be affected by this issue so that we can look into this further?
That evening, Layline’s Aaron Brougher responded to Swift’s Bob Redweik’s request and
identified the permitted wells that could be affected.
The permitted wells are:
PC-Q EF #5H, #8H and #10H
On October 29, 2012, Layline’s Aaron Brougher asked Swift’s Bob Redweik if Swift would like
to participate in the upcoming RRC hearing with Layline. Swift’s Bob Redweik responded with
“I will say a tentative yes at present. Please keep me in the loop.”
F. Procedural Posture
In July 2014, Quintanilla and others sued Regency for trespass, negligence, and other
causes. Swift intervened on September 24, 2015. Swift sued Regency for trespass, negligence,
gross negligence, and nuisance for present and future damage to seventy-four existing or planned
wells. Some of the wells are on the PCQ lease; others are on the non-PCQ leases.
Citing the two-year statute of limitations for injuries to real property, see TEX. CIV. PRAC.
& REM. CODE ANN. § 16.003, Regency moved for summary judgment against all of Swift’s claims.
The trial court granted summary judgment for Regency against Swift’s PCQ lease and non-
PCQ leases claims based on Regency’s affirmative defense of limitations.
Swift appeals.
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LIMITATIONS PERIOD TO BRING SUIT
The limitations period for a trespass claim is two years. TEX. CIV. PRAC. & REM. CODE
ANN. § 16.003(a) (“[A] person must bring suit for trespass for injury to the estate or to the property
of another . . . not later than two years after the day the cause of action accrues.”); accord Taub v.
Hous. Pipeline Co., 75 S.W.3d 606, 620 (Tex. App.—Texarkana 2002, pet. denied) (citing First
Nat’l Bank of Eagle Pass v. Levine, 721 S.W.2d 287, 289 (Tex. 1986)).
The limitations period for negligence, gross negligence, and nuisance claims is also two
years. Hunt Oil Co. v. Live Oak Energy, Inc., 313 S.W.3d 384, 387 (Tex. App.—Dallas 2009, pet.
denied) (negligence); Hall v. Stephenson, 919 S.W.2d 454, 467 (Tex. App.—Fort Worth 1996,
writ denied) (gross negligence); Nat. Gas Pipeline Co. of Am. v. Justiss, 397 S.W.3d 150, 153
(Tex. 2012) (nuisance).
“A defendant moving for summary judgment on the affirmative defense of limitations has
the burden to conclusively establish that defense.” Town of Dish v. Atmos Energy Corp., 519
S.W.3d 605, 608 (Tex. 2017) (quoting KPMG Peat Marwick v. Harrison Cty. Housing Fin. Corp.,
988 S.W.2d 746, 748 (Tex. 1999)). To establish that defense, if the discovery rule has not been
pled or raised, “the defendant must . . . conclusively prove when the cause of action accrued.”
KPMG, 988 S.W.2d at 748.
“Causes of action accrue and statutes of limitations begin to run when facts come into
existence that authorize a claimant to seek a judicial remedy.” Exxon Corp. v. Emerald Oil & Gas
Co., L.C., 348 S.W.3d 194, 202 (Tex. 2011) (op. on reh’g) (citing Provident Life & Acc. Ins. Co.
v. Knott, 128 S.W.3d 211, 221 (Tex. 2003)); accord Town of Dish, 519 S.W.3d at 609 (“[A]
trespass claim accrues once ‘known injury begins.’”). “Generally, when a cause of action accrues
is a question of law.” Knott, 128 S.W.3d at 221; accord Emerald Oil, 348 S.W.3d at 202.
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“[T]he commencement of [a] limitations period may be determined as a matter of law if
reasonable minds could not differ about the conclusion to be drawn from the facts in the record.”
Childs v. Haussecker, 974 S.W.2d 31, 44 (Tex. 1998); accord Cmty. Health Sys. Prof’l Servs.
Corp. v. Hansen, 525 S.W.3d 671, 681 (Tex. 2017) (quoting Childs, 974 S.W.2d at 44).
STANDARD OF REVIEW
“We review the trial court’s summary judgment de novo.” ConocoPhillips Co. v.
Koopmann, 547 S.W.3d 858, 865 (Tex. 2018) (citing Knott, 128 S.W.3d at 215). In our review,
“we take as true all evidence favorable to the nonmovant, and we indulge every reasonable
inference and resolve any doubts in the nonmovant’s favor.” Id. (citing Knott, 128 S.W.3d at 215).
We determine whether the movant has proved that there are no genuine issues of material fact and
that it is entitled to judgment as a matter of law. See TEX. R. CIV. P. 166a(c); Lightning Oil Co. v.
Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 45 (Tex. 2017).
DISCUSSION
To be entitled to summary judgment on all of Swift’s claims against it, Regency’s burden
was to conclusively establish its affirmative defense of limitations against each claim. See Town
of Dish, 519 S.W.3d at 608; KPMG, 988 S.W.2d at 748.
Swift intervened on September 24, 2015, and the two-year limitations period applies to
Swift’s claims. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.003(a); Justiss, 397 S.W.3d at 153
(nuisance); Hunt Oil, 313 S.W.3d at 387 (negligence); Taub, 75 S.W.3d at 620 (trespass); Hall,
919 S.W.2d at 467 (gross negligence). Swift did not plead or raise the discovery rule, so Regency’s
burden was to conclusively establish that Swift’s claims to the PCQ lease and the other leases
accrued before September 24, 2013. See Schlumberger Tech. Corp. v. Pasko, 544 S.W.3d 830,
833–34 (Tex. 2018) (citing KPMG, 988 S.W.2d at 748).
We first address the arguments and claims pertaining to the PCQ lease.
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A. PCQ Lease
1. PCQ Lease Arguments
Swift argues that Regency failed to conclusively establish when Swift’s PCQ lease claims
accrued. Swift reasons that “no cause of action accrued merely because of the uninvited intrusion
of injectate into the subsurface space covered by Swift’s PCQ lease.” Citing Lightning Oil, Swift
asserts that no cause of action accrues until the “uninvited molecules” actually infringe on its
mineral rights in its PCQ lease. See Lightning Oil, 520 S.W.3d at 49 (“[A]n unauthorized
interference with the place where the minerals are located constitutes a trespass as to the mineral
estate only if the interference infringes on the mineral lessee’s ability to exercise its rights.”).
Regency contends that the undisputed evidence conclusively proves that Swift’s PCQ lease
claims accrued more than two years before Swift sued. Citing Town of Dish, Regency argues
Swift’s PCQ lease claims accrued when the injectate entered the PCQ lease. See Town of Dish,
519 S.W.3d at 609 (“[A] trespass claim accrues once ‘known injury begins.’”). And Regency
contends that the injectate crossed onto the PCQ lease before October 2012. Regency notes the
JCB Horton #1 well is wholly surrounded by the PCQ lease, and thus when Swift learned on
October 23, 2012, that the JCB Horton #1 well had been contaminated by Regency’s H2S plume,
Swift knew that Regency’s injectate had spread onto its PCQ lease.
2. PCQ Lease Claims
In Layline’s October 2012 injectate breakout warnings to Swift, Layline advised Swift of
the H2S/CO2 contamination at Layline’s JCB Horton #1 well, which was surrounded by Swift’s
PCQ lease. In response to Swift’s inquiry, Layline identified three of Swift’s permitted wells that
could be affected by the injectate plume: the PCQ EF 5H, 8H, and 10H wells.
The relative location of the wells is important, and a cause of action accrual date analysis
requires an examination of the geological facts in three dimensions.
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a. Horizontal Plane
In the horizontal plane, the location of Swift’s wells with respect to the JCB Horton #1
well and the Tilden Injection Well is significant. Regency’s Tilden Injection Well is
approximately one-half mile north, northwest of the southwest corner of the PCQ lease. The PCQ
EF 5H and 8H wells are near the southeast corner of the PCQ lease; the PCQ EF 10H well is near
the northeast corner of the PCQ lease.
b. Vertical Plane
In the vertical plane, the depths of the injection well formation, the JCB Horton #1 well,
and Swift’s leased depths are also significant.
The summary judgment evidence shows the depths of the three formations that affect the
analysis: the Wilcox, the Olmos, and the Eagle Ford. 3 Of the three, the Wilcox disposal zone is
the highest—the closest to the earth’s surface; it is the formation into which Regency is injecting
the H2S/CO2 mixture. Below the Wilcox is the Olmos, from which the JCB Horton #1 well was
producing. And beneath the Olmos is the Eagle Ford, in which Swift has leased minerals.
Taking Swift’s summary judgment evidence as true, see Koopmann, 547 S.W.3d at 865,
we note that to reach its PCQ leased depths in the Eagle Ford, Swift must drill through the Wilcox
and the Olmos, and drilling through an H2S/CO2 contaminated formation and protecting its
existing wells from the H2S/CO2 injectate will impose additional costs and burdens on Swift.
3. Notice of Injury to PCQ Lease
Layline’s October 23, 2012 warning of H2S/CO2 injectate contamination of its JCB Horton
#1 well was notice to Swift of Regency’s injury-causing conduct—that the injectate plume had
3
There are other formations that lie above, between, and beneath the Wilcox, Olmos, and Eagle Ford formations, but
there is no need to recite them here.
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crossed the PCQ lease’s western border and into Swift’s PCQ lease. See Town of Dish, 519 S.W.3d
at 609 (“[A] trespass claim accrues once ‘known injury begins.’”).
Because the injectate plume overlaid Swift’s leased depths and would require Swift to drill
any new wells through the contamination, and the injectate had reached Swift’s existing well bores
and would corrode them, the plume had affected Swift’s rights in its PCQ lease. See Lightning
Oil, 520 S.W.3d at 49 (“[A]n unauthorized interference with the place where the minerals are
located constitutes a trespass as to the mineral estate [when] the interference infringes on the
mineral lessee’s ability to exercise its rights.”); Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348
S.W.3d 194, 207 (Tex. 2011) (“[T]he statute of limitations begins to run when a party has actual
knowledge of a wrongful injury.”); Tenn. Gas Transmission Co. v. Fromme, 269 S.W.2d 336, 338
(Tex. 1954) (noting the “[plaintiff’s] cause of action accrued at the time [the defendant] began
wrongfully discharging the water on the land (emphasis added)).
Layline’s October 23, 2012 warning that the PCQ EF 5H, 8H, and 10H wells were likely
affected was notice to Swift that the plume had spread to the PCQ lease’s southeast and northeast
corners—meaning the H2S/CO2 injectate was present in one or more formations that overlie
Swift’s PCQ leased depths and through which Swift’s existing PCQ well bores had to penetrate.
Layline’s October 23, 2012 e-mails, which the record conclusively establishes that Swift
received more than two years before Swift sued, were notice to Swift that its PCQ lease rights had
been infringed. See Lightning Oil, 520 S.W.3d at 49 (noting a trespass to a mineral estate occurs
“if the interference infringes on the mineral lessee’s ability to exercise its rights”).
4. Swift’s PCQ Lease Claims Barred
The summary judgment evidence establishing the commencement of limitations for the
PCQ lease claims is clear, and reasonable minds cannot differ on when the causes of action
accrued. See Hansen, 525 S.W.3d at 681; Childs, 974 S.W.2d at 44. The summary judgment
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evidence conclusively establishes that Swift’s causes of action for damage to its leased mineral
interests in the PCQ lease accrued more than two years before Swift sued Regency on September
24, 2015. See Lightning Oil, 520 S.W.3d at 49; Town of Dish, 519 S.W.3d at 609. Thus, Regency
conclusively established its affirmative defense of limitations against Swift’s claims for injuries to
its PCQ lease. See KPMG, 988 S.W.2d at 748.
We turn now to the arguments and claims pertaining to the other (non-PCQ) leases.
B. Non-PCQ Leases
1. Non-PCQ Leases Arguments
Swift argues it was Regency’s burden to conclusively establish when Swift’s causes of
action accrued for its non-PCQ leases. Swift contends Regency produced no evidence of when
Swift’s causes of action for the non-PCQ leases accrued, and Regency was not entitled to summary
judgment on those claims.
Rather than producing summary judgment evidence to conclusively establish when Swift’s
claims to its non-PCQ leases accrued, Regency proposes an entirely different analysis that relies
on Emerald Oil. See Emerald Oil, 348 S.W.3d at 202–03, 207–08. Regency argues that under
Emerald Oil, because (1) Swift sued Regency for damage to Swift’s non-PCQ leases, (2) Swift’s
PCQ lease claims accrued more than two years before it sued, and (3) Regency moved for
judgment against all of Swift’s claims, Regency was entitled to judgment against all of Swift’s
claims. See id.
As we explain below, Regency’s attempt to apply Emerald Oil’s field-wide notice for past
damage proposition to Swift’s non-PCQ lease claims for spreading contamination is misguided.
2. Non-PCQ Lease Claims
Regency’s reasoning relies on Emerald Oil, but Emerald Oil is distinguishable. See id.
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a. Misuse of Emerald Oil
To begin, Emerald Oil concerned whether Exxon sabotaged one or more of thirty-four
wells owned by the same royalty owners with the same royalty provisions in the same field that
Exxon (then Humble Oil) plugged during the same period; it was not a spreading contamination
case. See id. at 200. When Emerald sued Exxon, any damage Exxon had done to the wells had
already happened; there was no ongoing risk of spreading contamination or any possibility that
Exxon’s well-plugging acts would adversely affect other wells Exxon had not plugged. See id.
In marked contrast, Swift’s claims for non-PCQ leases are based on spreading
contamination from an injection well’s plume where the injection is ongoing and the injectate
plume continues to spread both horizontally and vertically in directions and at rates that have
defied experts’ earlier predictions. Emerald Oil’s proposition that notice of damage to eight wells
in a thirty-four well group was notice of possible injury to each of the remaining twenty-six wells—
where all the injurious actions and all the damage had already occurred, and where there was no
ongoing damage and no risk of spreading to other wells or leases—does not support Regency’s
argument and is not the proper test. Contra id. at 202–03, 207–08.
b. Proper Test
The proper test for an affirmative defense of limitations is well known and applies here.
See Town of Dish, 519 S.W.3d at 608 (quoting KPMG, 988 S.W.2d at 748). To be entitled to
judgment as a matter of law on its affirmative defense of limitations against Swift’s claims arising
from the non-PCQ leases, Regency’s burden was to conclusively establish that each of Swift’s
causes of action (i.e., trespass, negligence, gross negligence, and nuisance) accrued more than two
years before Swift sued Regency. See id.; ExxonMobil Corp. v. Lazy R Ranch, LP, 511 S.W.3d
538, 542 (Tex. 2017).
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c. When Causes of Action Accrue
For each of Swift’s causes of action, the accrual date depends on when the injury occurred.
See Town of Dish, 519 S.W.3d at 608.
For trespass, Swift’s cause of action for a particular lease accrues when there is “an
unauthorized interference with one of the rights [Swift] holds,” such as the right to develop. See
Lightning Oil, 520 S.W.3d at 49 (distinguishing trespass to land and trespass to a mineral right).
As Lighting Oil’s trespass analysis teaches, “an unauthorized interference with the place where
the minerals are located constitutes a trespass as to the mineral estate only if the interference
infringes on the mineral lessee’s ability to exercise its rights.” Id.
For negligence and gross negligence, Swift’s causes of action for a particular lease accrue
when the injectate breaches the boundary of that lease and interferes with Swift’s rights in that
lease. See Fromme, 269 S.W.2d at 338 (noting in a negligence case, the property owner’s “legal
rights were invaded the moment water from the [defendant]’s plant began to flow upon [the
plaintiff’s] land”).
For a permanent nuisance, Swift’s “claim accrues when the condition first ‘substantially
interferes with the use and enjoyment of [its property] by causing unreasonable discomfort or
annoyance to persons of ordinary sensibilities.” See Town of Dish, 519 S.W.3d at 609.
d. Regency Failed to Meet Its Burden
For its affirmative defense of limitations against Swift’s non-PCQ leases claims, Regency’s
burden was to conclusively establish when its injectate infringed on, or substantially interfered
with, Swift’s rights in each lease. See Lightning Oil, 520 S.W.3d at 49 (trespass); Town of Dish,
519 S.W.3d at 609 (nuisance); Fromme, 269 S.W.2d at 338 (negligence, gross negligence).
Because it did not produce or identify summary judgment evidence to conclusively establish the
dates that each of Swift’s claims to each of its non-PCQ leases accrued, Regency failed to carry
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its burden to conclusively establish its affirmative defense of limitations against Swift’s claims for
its non-PCQ leases. See Town of Dish, 519 S.W.3d at 608; Lazy R Ranch, LP, 511 S.W.3d at 542.
Regency did not move for summary judgment on any other grounds, and the trial court
could not have granted summary judgment for Regency against Swift’s non-PCQ claims on any
other basis. See State Farm Lloyds v. Page, 315 S.W.3d 525, 532 (Tex. 2010); Johnson v. Brewer
& Pritchard, P.C., 73 S.W.3d 193, 204 (Tex. 2002).
CONCLUSION
The summary judgment evidence conclusively establishes that Swift knew more than two
years before it sued Regency that its (Swift’s) PCQ lease rights had been infringed on by Regency’s
spreading injectate. Therefore, we affirm the portion of the trial court’s order that grants summary
judgment for Regency against Swift’s PCQ lease claims.
But Regency failed to conclusively establish that each of Swift’s claims regarding its non-
PCQ leases accrued more than two years before Swift sued Regency. Therefore, we reverse the
portion of the trial court’s order that grants summary judgment for Regency against Swift’s claims
for its non-PCQ leases and remand the cause to the trial court.
Patricia O. Alvarez, Justice
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