Railroad Commission Not Off the Hook for Plugging the Wrong Well

Originally published by Charles Sartain.

Posted by Charles Sartain

“You are my friend, kind of.” Hush Puppy, as she stares down the Aurochs in Beasts of the Southern Wild. Is our “friend” the Texas Railroad Commission?

Gulf Energy bought a package of offshore wells out of bankruptcy. Eight needed to be plugged and the Commission undertook that task, given the operator’s insolvency. Oops! The Commission’s contractor plugged one it shouldn’t have. Can Gulf Energy recover damages? The jury, trial court, and appellate court said yes. The Texas Supreme Court said maybe not. The question: Was the Commission entitled to have a jury determine whether it was in good faith when it mistakenly plugged the well?

The Commission awarded Superior Energy Services a contract to plug the wells. A Commission employee made a clerical error by transposing well numbers and Superior plugged well 708S-5 instead of well 707S-5.

Gulf sued the Commission and Superior for breach of contract and negligence. Superior settled.

Lawyers: See the discussion about preserving error when the court rejects your objection to a jury charge.  The result was the jury was not asked to determine whether the Commission was in good faith when it plugged the well.

The Statutory Defense

Under Commission rules, if the owners of a well can’t be found or don’t have sufficient assets, the Commission may plug an abandoned well. Under Chapter 89 of the Natural Resources Code the Commission and its employees “… are not liable for any damages that may occur as a result of acts done or omitted to be done by them … in a good—faith effort to carry out this chapter.”

How many ways can you say “good faith”

Gulf Energy alleged that the defense applies only to acts that involve discretion and do not extend to ministerial acts like plugging a well.  The Supreme Court rejected the argument based on the plain reading of the statute.

The Court had to determine what “good faith” means. After considering definitions from Webster’s Third New International Dictionary, Black’s Law Dictionary, the Uniform Commercial Code, and earlier Supreme Court rulings, it decided that good faith:

“refers to conduct which is honest in fact, free of improper motive or willful ignorance of the facts at hand.  It does not require proof of “reasonable” investigation … stating the proposition conversely …, “bad faith” means more than merely negligent or unreasonable conduct; it requires proof of an improper motive or willful ignorance of the facts.”

Good faith – judge or jury?

Was the good faith defense to be determined by the jury as a fact question or by the judge as a matter of law?  There were enough contradictory facts to raise a question about whether the Commission acted in good faith. For example, there was evidence that the employee presented correct information to Superior several days before the 708S-5 plugged, but they failed to pass it on to the crew boat conducting the operation. Energy urged that there was willful ignorance, which would nullify the good faith defense.

Result

Back to the trial court from whence it came for a new trial.

Things you only learn here 

Beasts of the Southern Wild is, to my knowledge, the only movie ever that employed a nutria consultant.

And a musical interlude worthy of Hush Puppy.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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