In this high-profile criminal prosecution of XTO Energy by the Pennsylvania Office of Attorney General, the scope of corporate criminal liability for the actions of third parties is likely to take center stage later this year in the Pennsylvania state courts. The route that the Pennsylvania courts take in this dispute will likely define the outer edges of corporate criminal liability for energy companies operating in Marcellus country for years to come.
Background
On September 10, 2013, Pennsylvania Attorney General Kathleen Kane charged XTO Energy, Inc., a subsidiary of ExxonMobil, with criminal violations of the Pennsylvania Solid Waste Management Act and the Clean Streams Law, based on an alleged discharge of waste water in Lycoming County, Pennsylvania. In so doing, Attorney General Kane used a Pennsylvania Statewide Investigating Grand Jury, ordinarily impaneled to conduct investigations of organized crime and public corruption, to conduct an investigation of the company and its practices. Employees of XTO Energy, Bosque Disposal Systems, LLC, and agents from the Pennsylvania Department of Environmental Protection (DEP) and Pennsylvania Office of Attorney General (OAG) were called to testify before the Grand Jury.
According to the charges, on November 16, 2010, DEP conducted an unannounced inspection at the company’s site in Penn Township, Lycoming County, Pennsylvania. The site, referred to in the Grand Jury’s Presentment as the Marquardt site, hosted two wells and a series of mobile storage tanks. At the time of the inspection, the mobile tanks were being used to store waste water produced from XTO Energy’s wells at the Marquardt site as well as nearby company sites. Although it was raining steadily, the DEP inspector testified that he heard the sound of running water coming from the rear of a waste water storage tank. Upon closer inspection, he noted that the drain plug had been removed from the rear valve of Tank 18174 and that the rear valve was partially open, allowing the waste water to run onto the ground and into an unnamed tributary. Tank 18174 was attached to five other tanks that were connected by a manifold system to allow water to run freely between the tanks. Samples of the water on the ground at the site revealed elevated levels of chlorides, barium, strontium, and total dissolved solids. Similarly, samples from the tributary revealed elevated levels of chlorides, aluminum, barium, and total dissolved solids. Records and testimony compelled by the Grand Jury revealed that 57,000 gallons of waste water were unaccounted for at the site as a result of the spill.
In July 2013, the federal government reached an agreement with the company over the incident, based on an alleged violation of the Clean Water Act. Under the agreement, the company agreed to pay a $100,000 fine and implement a comprehensive plan to improve its waste water management practices. Significantly, the consent decree with the federal government stated that the agreement “expressly does not resolve any enforcement action of the Commonwealth of Pennsylvania under any federal and state law and any such claims are not precluded or limited in any way by resolution of this matter.” Two months later, the Pennsylvania Attorney General filed its criminal charges against XTO Energy as a corporation predicated on the same incident that was at issue in the federal consent decree.
Following the filing of criminal charges, XTO Energy issued a press release blasting the charges as “unwarranted and legally baseless” and as “an abuse of prosecutorial discretion.” The company defended itself on the ground that none of its employees intentionally, recklessly, or negligently caused the discharge of water. Rather, the company noted that the most likely explanation for the spill was that an independent contractor that had been managing the site before the spill did not close the valve properly after a transfer of water. The company further observed that it acted quickly to remediate the spill and worked cooperatively with state and federal authorities to eliminate any temporary environmental effects, none of which were significant or lasting. In fact, upon the remediation, which occurred with active guidance from the DEP, the site was fully remediated. Later, as noted above, the company agreed with federal authorities on reasonable civil penalties and preventative measures—well before the sudden charges from the Attorney...
