October 22, 2014

Stop Gas Drilling — Sue Your Neighbor

Basic real estate law could stop gas drilling in the Northeast.
By Andrew Reinbach, Huffingtonpost, November 24, 2010

Basic real estate law could stop gas drilling in the Northeast.

Here’s the idea. When you bought your house you didn’t buy just dirt and bricks; you bought what your lawyer calls a bundle of rights. That includes what he or she calls the right of quiet enjoyment.

Quiet enjoyment means more than the right to sit on your porch and watch the sunset; it includes the right to enjoy the value of your property. If your neighbor does something to hurt this right, he has to pay you the before-and-after difference — to make you whole, as they say.

It’s called nuisance law, and means everybody has the right to do what they want with their property — as long and they don’t hurt anybody else. If they do, they have to pay.

So, since banks won’t lend on a house near a gas well unless the owner can prove their water supply will always be safe, and that can’t be done — i.e.: where there’s gas drilling, property values collapse — it follows as the night the day that if your neighbor leases his land for gas drilling, you can sue said boneheaded neighbor to make you whole.

“It’s just Real Estate 101,” says the co-chair of one of the American Bar Association’s practice groups. “I’m surprised nobody’s using it now.”

As it happens, it is being done now. Two recent Pennsylvania lawsuits, filed separately against Southwest Energy Co. and Chesapeake Energy Corp., claim that their gas drilling has contaminated local water supplies and harmed the related property values.

That first claim — that gas drilling contaminated the local water — is the hot button issue for anti-drilling activists. But Peter Cambs, the partner in Parker Waichman Alonso LLP fighting the suits, likes the property value issue better.

“It’s the stronger claim,” he says. “I don’t think there is a defense” against it. Nationwide, the statistical case that gas drilling depresses property values is practically bullet-proof.

On the other hand, says Cambs, defense attorneys can try to play out the clock on the water contamination claim with what you could call the tobacco defense — first deny there was any contamination, then that gas drilling caused it, then insist the issue needs more study, and finally say there’s no way to quantify the damage.

By the time they’re ready to settle, it’s many years later, and drilling’s gone on apace. He says his case will be an appeal to common sense — that the water was fine until drilling began, so it obviously caused the contamination.

How useful common sense will be in a court room remains to be seen. In any case, says Cambs, he expects the case to last at least two years — before appeals.

Of course, the problem for many property owners living near gas drilling is that they didn’t buy their rural property to live in an industrial zone. And they’re remarkably uninterested in being hurt in the first place.

Enter Gregory Alexander, A. Robert Noll Professor of Law at Cornell University. He says there’s a well-trodden legal path that could stop drilling before it begins.

Called anticipatory nuisance, it’s basically the notion that you can stop your neighbor from doing something if waiting to sue until you’re harmed is ludicrous. In a western, this is where the marshal says you shot in self-defense.

“It’s a doctrine that’s established in common law,” says Alexander. “A court would not be making new law” by supporting such a claim, and “it presents a plaintiff with a lot of ammunition.”

The beauty here is that applying the case law to gas drilling is no stretch. According to George P. Smith, II, who wrote an article about this in the Vermont Law Review, it was established in 1864 America, when a court found that one Mr.Tipping’s property rights would be harmed by a proposed smelting operation, even though there were several factories nearby. More rulings followed.

These are really two different sorts of lawsuits; one compensates you if drilling’s already taken place and the other would stop it before it happened. And anybody can tell you that what anti-drilling activists want to do is the latter — which is why they’re trying, at least in New York, to convince Governor-elect Andrew Cuomo to either throw out the regulations already drawn up by the state’s Department of Environmental Protection and start over (they’re not yet adopted), or ban modern, horizontal gas drilling — so-called “fracking” — altogether.

Only Mr. Cuomo knows if he’ll ever do that, and so far, he hasn’t committed himself. But even if he did completely disappoint the anti-drilling forces, they could use Prof. Alexander’s idea in a test case that would tie up drilling for a long time — and maybe stop it altogether. It would cost plenty; but the money and legal talent could probably be found, if it came to it.

Since each state has their own case law in these matters and states like Texas and West Virginia don’t favor such lawsuits, this leaves us with the problem of what to do in Pennsylvania, New York, and, maybe, Ohio. It’s where things will get messy and people will have to get their hands dirty.

Here’s the scenario. Most gas leases in New York, Ohio, and much of Pennsylvania are running out and need to be renewed. It’s one of the big reasons drilling’s taking place now; if they are renewed, the lease prices will jump, but if the well’s drilled before the lease expires, the old deal still holds.

This is where you get together with the neighbors who don’t want drilling around them, and then explain to the neighbor with the lease that if he does drill, he’ll have to make their neighbors whole, and if he renews, he’ll be sued for anticipatory nuisance.

If, in the first case, he’s looking forward to getting, say, $10,000 a month in lease payments, he’ll suddenly be looking at paying it all out to make his neighbors whole — not much of a deal for him. And of course, in the second case he won’t be drilling at all — just fighting a lawsuit he has a good chance of losing.

Of course, many landowners in both states have joined coalitions to get themselves the best possible deal. And in those cases, there’s a clause in the uniform lease that indemnifies each of them from legal fees.

The problem? Those indemnification clauses typically only cover the first $2 million in legal fees, with a $10 million cap on total legal expenses. That sounds like a lot, sure — but it’s not. It’s only enough to trap them in a case that could drag on for years and cost multiples of those amounts. As for the neighbor who signed an individual lease at his kitchen table; he’s out of luck, big time.

As for you and your friends willing to sue; as I said earlier; it’s not impossible you could find some group interested in backing a test case — a case that would establish a new, exact legal precedent anybody could invoke to stop their neighbor from making money at their expense.

Taking this approach probably wouldn’t make your neighbor your best friend; but a cynic might point out that he probably wasn’t thinking about you when he signed the lease in the first place. And it does offer the promise of letting you sit on your porch for years, watching the sunset.