Coyote Lake Ranch, LLC v. City of Lubbock

498 S.W.3d 53

Coyote Lake Ranch, LLC, Petitioner,

v.The City of Lubbock, Respondent

NO. 14–0572

Supreme Court of Texas.

Argued October 14, 2015

Opinion delivered May 27, 2016

Rehearing Denied September 23, 2016

Rachel Anne Ekery, Wallace B. Jefferson, Alexander Dubose Jefferson & Townsend LLP, Austin, TX, Cullom Brantley Jones, Marvin W. Jones, Sprouse Shrader Smith, PLLC, Amarillo, TX, Jennifer Ruth Josephson, Roger D. Townsend, Alexander Dubose Jefferson & Townsend LLP, Dallas, TX, for Petitioner.

Jeffrey C. Hartsell, Chief Litigation Attorney, Richard K. Casner, Crenshaw, Dupree & Milam, LLP, Lubbock, TX, Dale Wainwright, Lindsay E. Hagans, Bracewell LLP, Austin, TX, for Respondent.

Doug Caroom, Bickerstaff Heath Delgado Acosta LLP, Austin TX, for Amicus Curiae Canadian River Municipal Water Authority.

Arthur G. Uhl III, Uhl, Fitzsimons, Jewett & Burton, San Antonio TX, for Amicus Curiae Texas & Southwestern Cattle Raisers Association.

Andy McSwain, Daniel Nesbitt MacLemore IV, Fulbright Winniford PC, Waco TX, for Amicus Curiae Texas Farm Bureau.

Harriet O'Neill, Law Office of Harriet O'Neill, PC, Austin TX, Lisa Bowlin Hobbs, Kuhn Hobbs PLLC, Austin TX, for Amicus Curiae The Land Owner Coalition of Texas.

Dylan O. Drummond, Squire Patton Boggs (US) LLP, Dallas TX, for Amicus Curiae The Texas City Attorneys Association and The Texas Municipal League.

CHIEF JUSTICE HECHT delivered the opinion of the Court, in which JUSTICE GREEN, JUSTICE JOHNSON, JUSTICE GUZMAN, JUSTICE DEVINE, and JUSTICE BROWNjoined.

Absent an agreement to the contrary, an oil-and-gas lessee has an implied right to use the land as reasonably necessary to produce and remove the minerals but must exercise that right with due regard for the landowner's rights.¹ This rule has come to be called the accommodation doctrine. The issue now before us is whether the doctrine also applies as between a landowner and the owner of an interest in the groundwater. Contrary to the court of appeals,² we hold that it does, but we agree with that court that the case should be remanded to the trial court for further proceedings.

I

Coyote Lake Ranch³ comprises 26,600 acres (a little more than 40 square miles, about one-third the size of the City of Lubbock) in Bailey County, which is in the Texas Panhandle, on the New Mexico border. The Ranch is used primarily for agriculture, raising cattle, and recreational hunting. Most of the Ranch is sand dunes with a natural grass cover, but some of it is irrigated cropland. Water comes from the Ogallala Aquifer, a shallow water table stretching beneath parts of eight states from Texas to South Dakota. The Ogallala is the principal source of water for the Texas High Plains, including the City of Lubbock, which is about 90 miles southeast of the Ranch.⁴

In 1953, during " 'the most costly and one of the most devastating droughts in 600 years' ",⁵ the City of Lubbock bought the Ranch's groundwater to help supply its residents and those of other towns. The Ranch deeded its groundwater to the City, reserving water for domestic use, ranching operations, oil and gas production, and agricultural irrigation. For irrigation, the deed allows the Ranch to drill only one or two wells in each of 16 specified areas. The deed contains lengthy, detailed provisions regarding the City's right to use the land, which are set out in full in the margin.⁶ Importantly, the deed provides:

• Well locations: The City has "the full ... rights of ingress and egress in, over, and on [the Ranch], so that the [City] may at any time and location drill water wells and test wells on said lands for the purpose of investigating, exploring[,] producing, and getting access to percolating and underground water", except that "no city water well shall be drilled ... within one-fourth (1/4th) mile of any of the presently existing windmill wells".

• Surface use generally: The City has "the rights to use all that part of [the Ranch] necessary or incidental to the taking[,] production, treating [,] transmission[,] and delivery of ... water".

• Surface use specifically: The City—

• may construct certain specified facilities, including water lines, fuel lines, power lines, communication lines, barricades, and access roads "on, over and under said lands necessary or incidental to any of said operations";

• must pay rent for the surface occupied;

• must "pay for damages to any surface property proximately caused by any operations or activities on [the] land by the City"; and

• must install gates and cattle guards on its roads.

To date, 18 wells have been drilled on the Ranch for irrigation or domestic use, and the City has drilled seven wells on the northern edge of the Ranch.

In 2012, the City announced plans to increase water-extraction efforts on the Ranch, possibly drilling as many as 20 test wells in the middle of the Ranch, followed by 60 additional wells spread across the Ranch. The Ranch objected that the proposed drilling program would increase erosion and injure the surface unnecessarily. The City claimed that it was acting well within the broad rights granted by its deed. Unable to reach agreement, the City began mowing extensive paths through the native grass to prospective drill sites, and the Ranch sued to enjoin the City from proceeding.

The Ranch pleaded in part that the City "has a contractual and common law responsibility to use only that amount of surface that is reasonably necessary to its operations" and "a duty to conduct its operations with due regard for the rights of the surface owner." The City contended that it has full rights under its deed to pursue its plans and that the law imposes no duty on groundwater owners, as it does on mineral owners, to accommodate the surface owner.

At the temporary injunction hearing, the Ranch's manager testified that mowing or removing vegetation from the surface causes destructive wind erosion, exacerbated by cattle tromping over mowed paths. According to the manager, wind, drought, and grazing cattle prevent grass from growing back, particularly in the areas the City mowed—the sandiest, hilliest part of the Ranch. He proposed an alternative plan for different well sites and fewer roads. The Ranch also presented evidence that elevated power lines would allow hawks to roost and prey on the Lesser Prairie Chicken, a threatened species for which the Ranch is a natural habitat.

The trial court granted the Ranch a temporary injunction, concluding

that the Ranch will probably prevail on the trial of this cause; that pursuit of [the City's] well field plan has caused damaged to the Ranch, and further damage to the Ranch will occur absent the use of reasonable means to ameliorate that damage; that [the City's] proposed well field plan is likely accomplished through reasonable alternative means that do not unreasonably interfere with the Ranch's current uses; and that the Ranch has suffered harm caused by [the City's] activities and will likely suffer irreparable harm in the future.

The court enjoined the City from

a. Mowing, blading, or otherwise destroying the growing grass on the surface of the Ranch;

b. Proceeding with any test hole drilling or water well drilling without consulting plaintiff regarding potential impacts to the surface of the Ranch;

c. Erecting power lines to proposed well fields on the Ranch.

The City appealed,⁷ arguing that its deed expressly gives it the right to conduct the proposed operations, and that the restrictions on mineral owners imposed by the common law—the accommodation doctrine—do not apply to groundwater owners. The court of appeals appears simply to have assumed that the deed provisions are as broad as the City contends, concluding that the Ranch could not prevail unless the accommodation doctrine applies.⁸ The Ranch argued that this Court's decision in Edwards Aquifer Authority v. Day⁹ supports an extension of the doctrine. In Day, we held that groundwater is owned in place by the landowner, in part analogizing to oil and gas, which we have long held is owned in place by the landowner.¹⁰ By the same reasoning, the Ranch argued, the accommodation doctrine should extend to groundwater interests. The court of appeals rejected the argument, and finding no authority to support the Ranch's position, reversed and dissolved the temporary injunction.¹¹

We granted the Ranch's petition for review.¹²

II

"As a rule, parties have the right to contract as they see fit as long as their agreement does not violate the law or public policy."¹³ The rule applies to a mineral owner's use of land,¹⁴ and the Ranch and the City agree that it applies to them as well. The City's deed governs its use of the Ranch's land to access and remove groundwater.

The deed gives the City the right to drill wells "at any time and location" but only "for the purpose of" conducting operations to access the groundwater.¹⁵ The deed then limits the City's use of the Ranch to what is "necessary or incidental" to those operations. But the deed leaves unclear whether the City can do everything necessary or incidental to drilling anywhere, as it claims, or only what is necessary or incidental to fully access the groundwater, as the Ranch argues. If the City is correct, it has an all but absolute right to use the surface heedless of avoidable injury, although it must answer for damages caused to the surface and rent incurred for the surface occupied. The City contends that it can drill wherever it chooses, even if it could drill in places less damaging to the surface and still access all the water. If the Ranch is correct, the City can drill only where the Ranch allows as long as full access to the groundwater is not impaired. The Ranch could thus severely restrict the City's drilling activities. The deed does not resolve this dispute. It is simply silent on the subject.

The same is true for the Ranch's complaint that overhead power lines will unnecessarily threaten the Lesser Prairie Chicken habitat on the Ranch. Given the City's concerns that buried power...