Claims Against Coalbed Methane Operator Allowed to Proceed

In a case that may have implications for fracking operations, a federal district court for the western district of Virginia allowed property damage claims to proceed against a coalbed methane operator.

In C.J. Ritter Lumber Co., Inc. v  Consolidated Coal Co., 2011 U.S. Dist. LEXIS 95131 (W.D. Va. 8/25/11), the plaintiff entered into coal leases with Island Creek Coal Company (Island) in 1961 for the Beatrice and VPI Mines. The lease provided,in part, that the lessee “shall locate all dumps for the disposal of refuse and waste material and all settlement basin and all ponds at such locations as may be approved by the Engineer of the Lesssor…..”

In 1990, plaintiff entered into a Coalbed Methane Gas Lease with Island in 1990. This lease  granted Island with rights to investigate and produce CBM including the right to lay pipeline, build tanks, erect power stations, telephone lines and other structures to facilitate the production and transportation of CBM.

In 1993, Island assigned its rights under the CBM lease to Oxy, USA who then assigned its interests to Appalachian Methane, Inc., and Appalachian Operators, Inc. These entities then assigned their rights to Buchanan Production Company who entered into a lease amendment with the plaintiff that increased the plaintiff’s royalty.  Later that year, Consol Energy Coal  (Consol) purchased a beneficial interest In Island and the CBM assets.  Buchanan subsequently merged with CNX who then succeeded Consol as the CBM operator. Deep mining operations ceased at the Beatrice Mine in 1986 and at the VMI Mine in 1998.

The plaintiff alleged that Consolidated damaged its property when it discharged billions of gallons of untreated wastewater into open spaces and voids caused by former mining operations. The plaintiff asserted the wastewater contained very high levels of suspended and dissolved solids, chlorides, sodium and other pollutants and contaminants. The plaintiff demanded that the defendats take remedial actions to preserve the remaining coal assets in the mines. The plaintiff also alleged that it had detrimentally relied on documents that had been falsely prepared by Consolidated and therefore had not acted to earlier to protect its coal assets. Consolidated countered that the mines had flooded naturally and that the plaintiff’s claims were precluded by the statute of limitations (SOL).

The plaintiff argued that their claims were preserved by the CERCLA discovery rule of 42 U.S.C. 9658. This section established a “federal commencement date” for personal injury or property damage claims caused or contributed by  hazardous substances, pollutants or contaminants. The defendants argued that this section could only be invoked if there was an underlying CERCLA claim.  Followed the reasoning of the Ninth Circuit, the magistrate issued a report recommending the court rule that the CERCLA federal commencement date applied to any action brought under state law for property damage or personal injury.

The magistrate recommended that the court deny the motions to dismiss the trespass, negligence and nuisance claims against Island, Consolidated and CNX because the plaintiff had retained ownership and control of the leased parcels. However, the magistrate found that the plaintiff had not alleged any facts to show that Consol owed any duty to the plaintiff.

On the breach of contract claim, the magistrate found that Virginia courts had recognized an implied duty to act as a reasonably prudent operator. Thus, the magistrate recommended that the court allow the breach of contract claim against Island and CNX  because the plaintiff had pled a sufficient possessory interest for purposes of a motion to dismiss.

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