Monday, October 20, 2003

The embattled Texas Supreme Court justice whose appointment to the U.S. Fifth Circuit Court of Appeals has stalled for the second time over charges of "ultraconservative judicial activism"
now finds herself in the middle of another controversy, this one the oil-patch equivalent of a range war.

Judging Priscilla

by Paul Burka, Texas Monthly
October 20, 2003

POOR PRISCILLA OWEN. The embattled Texas Supreme Court justice whose appointment to the U.S. Fifth Circuit Court of Appeals has stalled for the second time over charges of "ultraconservative judicial activism" now finds herself in the middle of another controversy, this one the oil-patch equivalent of a range war. It's the landowners versus the oil-and-gas producers who pay them royalties-and if you don't know how vicious this feud can be, you haven't seen the 1956 classic Texas film Giant, with Rock Hudson as cattle baron Bick Benedict and James Dean as new-rich producer Jett Rink. The legal battle involves the opinion favoring producers that Owen wrote in August in an oil-and-gas case known as Natural Gas Pipeline v. Pool. This flare-up and an earlier one over an Owen opinion with the same pro-producer outcome in a case called HECI v. Neel have passed unnoticed in the political brouhaha over her appointment, because they involve an obscure area of the law that, on the surface, is just a fight between rich folks and richer folks. But the issue is the same as in her confirmation battle: Is she a judicial
activist who rules according to her ideology rather than the law?

In the political arena, the criticism of Owen comes from liberal groups such as People for the American Way, the National Organization for Women, and the NAACP, and it involves her stands on hot-button issues like abortion and discrimination. "She reflexively favors manufacturers over consumers, employers over workers, and insurers over sick people," said the New York Times in an editorial opposing her appointment. In the oil-and-gas arena, the criticism of Owen comes from lawyers and law professors who have seen decades of precedents favoring landowners tossed aside to favor producers. Laura Burney, a professor at St. Mary's
University law school, in San Antonio, says of HECI's pro-producer stance, "Apparently I have been teaching oil and gas law wrong for the past fifteen years. I still agree with the Court of Appeals opinion [favoring Neel] in HECI." The reason to look at these cases, then, is to view the work of Priscilla Owen apart from emotional issues, in a legal realm in which most of us do not start out with a predetermined bias and in which she is a recognized expert.

Exhibit 1: Natural Gas Pipeline v. Pool.

The case began in the dusty files of the Texas Railroad Commission, where researchers poring over decades-old records uncovered numerous instances of wells near Amarillo that had stopped producing natural gas for days or months at a time, as long ago as the forties and fifties, only to resume production later. Under Texas law, a stoppage in production-unless there is a good reason for it, such as a mechanical breakdown or an agreement that permits interruptions-terminates the producer's right to the oil and gas, which returns to the landowner. The research generated a slew of lawsuits by landowners and royalty owners, Pool among them. Cases like these-one side trying to play "gotcha!" with the other-are not the most shining examples of the law's majesty, but they do reflect the ill will that frequently accompanies the landowner-producer relationship.

The legal doctrine that applies to stoppages of production is so well settled that it has acquired an acronym: TCOP, for "Temporary Cessation of Production." After production begins, a temporary delay due to some reason beyond the producer's control does not result in a forfeiture of rights. What appeared to be a straightforward TCOP case-in which the argument would focus on whether the cessation was both temporary and justified-evolved into an opportunity for Priscilla Owen to rewrite Texas oil-and-gas law on behalf of producers. She bypassed the TCOP doctrine to blaze a trail where the Texas Supreme Court had never ventured: Even if the producer had lost its right to the oil and gas, she wrote, it had regained the right, and breathed new life into its
lease, through adverse possession (commonly known as squatters' rights).

This was too much of a detour from the legal mainstream for Owen's colleague Justice Wallace Jefferson, who dissented. He pointed out the age-old rule that adverse possession requires some sort of notorious, hostile action that provides the original landowner with notice of the adverse claim. But here, he wrote, "Both the [producer] and [landowner] proceeded as though the leases were still in effect. Thus, the [producer's] possession was arguably permissive and not hostile." What troubled Jefferson most was that the decision could wreak havoc, disturbing "the delicate [landowner-producer] relationship." It certainly renders the TCOP doctrine comatose; no longer does it matter whether the cessation was the result of an accident or deliberate. The latter was apparently the case in Natural Gas Pipeline (the producer was hoping that prices would rise). Above all, Jefferson was concerned that Owen's reasoning could allow producers in future cases to claim that they no longer had to pay royalties-that adverse possession allowed them to claim all of the production, including the fraction previously held by royalty owners. In short, it is a license to steal. As Owen's critics go, Jefferson can hardly be classified as a liberal. He is a Rick Perry appointee to the court and is, like Owen, like all nine justices on the court, a Republican.

Exhibit 2: HECI v. Neel.

Russell Neel, a Fayette County (La Grange) landowner, gave HECI Exploration the right to produce oil and gas on his land in return for a one-sixth royalty payment. In 1988, three years
after HECI began pumping oil, the company discovered that another producer, operating on adjacent land not owned by Neel, had damaged the underground reservoir, making it impossible for HECI to extract some of the oil. HECI sued the other operator in 1989 and won $3.7 million for its lost production. But it never told Neel about the damage to the reservoir or about the lawsuit and its outcome, and it never paid him a dime for the royalties he lost. Eventually Neel, and his children who lived out of state, learned about HECI's lawsuit. They sued HECI for
failing to keep them informed and for not paying them their one-sixth share, as royalty owners, of the $3.7 million HECI pocketed.

Precedent favored the Neels. Producers have a duty to protect the rights of royalty owners. The duty is not written down in the agreement between the producer and the landowner, but it's so self-evident that the Texas Supreme Court has repeatedly recognized its existence-for a century. Landowners don't have the expertise to punch a hole in the ground and produce oil and gas; they sign an agreement with someone who does. But the Neels had one problem: the statute of limitations. They had sued HECI five years after the producer had learned about the damage to the reservoir. The deadline for bringing such cases is four years after the event becomes known. Still, this didn't seem like a major obstacle. The standard rule is that the statute of limitations doesn't apply if the information was "inherently undiscoverable" by a landowner using "due diligence."

It is open-ended terms like these that make lawyers rich and provide judges with opportunities for mischief. What is "due diligence"? How in the world were the Neels supposed to discover what was happening deep underground on somebody else's land? Were they supposed to hire an
expert to pore over technical Railroad Commission documents? (Even if they had, the documents would not have revealed the crucial fact of reservoir damage.) Or hire an expensive engineer on the off chance that something had gone wrong? Apparently so. A royalty owner, Priscilla Owen wrote, "knows or should know that, when there are other wells drilled in
a common reservoir, there is the potential for drainage or damage to the reservoir." In other words, the mere appearance of nearby wells was enough to put royalty owners on notice that their own producer might have cause to cheat them.

And so Owen wrote that the Neels must lose; their lawsuit was defeated by the statute of limitations because the damage to the reservoir was, in her view, discoverable. Before her opinion in the HECI case, the responsibility was on the producer to protect the landowner. After her opinion, it's on the landowner to protect himself. The burden she placed on landowners and royalty owners was so unrealistic, and so far removed from previous Texas law, that the HECI case was the subject of an annual oil-and-gas seminar sponsored by the University of Texas law school in 2001. A Houston lawyer named Paul Simpson wrote a bluntly critical analysis of the case that began, "The Texas Supreme Court's 1999 opinion in HECI v. Neel was not supported by the record in that case, departed from established oil and gas law, and deviates from the mainstream of law in other major producing states." Like Justice Jefferson, Simpson hardly qualifies as a liberal. He was at the time the treasurer of the Harris County Republican party.

A high-profile judicial appointment always involves two issues. One is the nominee's political views. The other is the nominee's judicial temperament. The latter is much more important than the former. The president of the United States is entitled to appoint a judge who reflects his own political views. So long as that judge is committed to exercising self-restraint, respecting long-established precedents, and considering the potential unintended consequences of her rulings, we don't need to worry about whether ideological zeal will run amok. The trouble with the foregoing Priscilla Owen opinions, however ingeniously constructed the arguments may be, is that they do not reflect self-restraint, respect for precedent, or concern with unintended consequences. The proper standard for judicial appointees should be that they "interpret the law, not try to make the law from the bench"-and if that sounds familiar, it's because President Bush himself said it.