On May 27, 2016, the Texas Supreme Court issued its opinion in Coyote Lake Ranch, LLC v. City of Lubbock.  Many Texas agricultural and water law attorneys were in Lubbock attending the State Bar of Texas Agricultural Law Continuing Legal Education Seminar.  As soon as the opinion was released, you should have seen everyone scurrying around!

This case (on which I have previously blogged here) is extremely important for Texas landowners and groundwater owners.  For the first time, the Texas Supreme Court announced that the accommodation doctrine, previously applied only in oil and gas severances, will apply in groundwater severances as well.

Texas A&M University Agrilife Extension photo by Steve Byrns

Background

The Coyote Lake Ranch is primarily used for agriculture, including cattle, irrigated cropland, and recreational hunting.  The majority of the ranch consists of sand dunes with natural grass cover, while some portion consists of irrigated cropland.  The ranch overlays the Ogallala Aquifer and sits about 90 miles northwest of Lubbock.

In 1953, the City of Lubbock purchased groundwater rights from the Coyote Lake Ranch, a 26,600 acre ranch in Bailey County, Texas.  Specifically, the ranch deeded over its groundwater to Lubbock, reserving the right to use groundwater for domestic wells, ranching operations, oil and gas production, and agricultural irrigation.  The deed contains, as described by the Texas Supreme Court, “lengthy, detailed provisions regarding the City’s right to use the land.”  These provisions include allowing the city full rights of ingress and egress to drill water wells and test wells on the land at any location; the right to use all of the ranch necessary or incidental to taking, production, treating, transmission, or delivery of groundwater; and the ability to construct facilities including water lines, fuel lines, power lines, communications lines, access roads, necessary or incidental to operations.  In exchange, the deed requires Lubbock to pay rent for surface occupied by its facilities, pay damages to any surface property caused by operations and activities on the land by Lubbock, and install gates and cattle guards on roads.

To date, the City has drilled 7 wells, all along the northern edge of the ranch.  In 2012, Lubbock announced its intent to increase groundwater production on the ranch, drilling up to 20 test wells and 60 additional wells across the property.  Lubbock began mowing paths through the ranch to their prospective drill sites.  The ranch, however, was not happy with this plan.  Concerned about the increased erosion and surface damage these operations would cause as well as potential detrimental impacts on the then-protected Lesser Prairie Chicken, the ranch sought legal intervention.

Litigation

The ranch sought an injunction in the trial court to stop Lubbock from proceeding with its work.  The ranch based this injunction on the idea 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.”  Essentially, the ranch argued that the accommodation doctrine should apply in this case.  Lubbock responded that the deed language allowed them to use the surface and drill the wells and, additionally, that the accommodation doctrine does not apply to groundwater owners, as it does to mineral owners.

The trial court sided with the ranch, reasoning that the ranch was likely to prevail on the merits and issuing an injunction against Lubbock.  Specifically, the court prohibited Lubbock from mowing, blading, or otherwise destroying growing grass; from proceeding with drilling any test holes or water wells without consulting the plaintiff about potential impacts on the ranch, and from erecting power lines to the proposed well fields.

Lubbock appealed and the Amarillo Court of Appeals reversed.  [Read prior blog post here.]  Specifically, the Court stated that because no Texas court had ever extended the accommodation doctrine to groundwater, it “respectfully defers to the Texas Supreme Court to recognize and pronounce such an extension, especially in light of the dramatic implications it could have in the area of water law in Texas.”  Based on this holding, the court reversed the trial court’s injunction and remanded the case.

The ranch appealed to the Texas Supreme Court.  The Court accepted the case and held oral arguments last October.

Texas Supreme Court Opinion

In an important decision that could have far-reaching impacts, the Court sided with the Ranch, holding that the accommodation doctrine does apply to groundwater in Texas.  [Read full opinion here.]  Let’s walk through the Court’s holdings and reasoning in its majority opinion, signed by 6 Justices.

1. The deed of groundwater governs the parties’ rights.  Initially, the Court stated that the deed governed the City’s rights with regard to using the land to access and remove groundwater. The Court determined that the deed was silent on the key issues in this case.First, although the deed allowed Lubbock to do what is “necessary or incidental” to access the groundwater, it did not answer the question of whether the city can do everything necessary or incidental to drilling anywhere on the ranch or only what is necessary or incidental to fully access the groundwater. The City argues this term allows them to use any portion of the ranch and drill wherever it chooses.  The ranch argues that this term allows the ranch to dictate where drilling may occur so long as full access to the water is allowed.  The Court held the deed simply does not answer the question of where drilling and activities may occur.Second, the Court held that the deed was silent with regard to the use of overhead power lines.  The ranch argued that overhead power lines would harm the habitat of the Lesser Prairie chicken, while the City was concerned about the cost and potential shifting of sand dues if they used underground power lines.  The lease was not clear on which of these lines would be considered “necessary and incidental” to accessing water.Because the Court determined the parties’ deed did not address the specific issues at play–where can the City drill wells and facilities related to such wells and what types of power lines may be utilized–the Court turned, then, to the accommodation doctrine.
2. Groundwater and oil and gas are sufficiently factually similar to apply the same legal principles.  The Court walked through a litany of ways that groundwater and minerals are similar: both exist in subterranean reservoirs; both are fugacious; both may be severed from the surface of the land; a severed groundwater right has the same right to use the surface as a severed mineral right; both are subject to the rule of capture; and both are protected from waste.  Further, the Court cited back to its 2012 opinion in Edwards Aquifer Authority v. Day, where it considered the similarities between groundwater and oil and gas to conclude groundwater in place beneath the surface is owned by the landowner.  “Common law rules governing mineral and groundwater estates are not merely similar; they are drawn from each other or from the same source.”
3. Groundwater estates are dominant to surface estates when severed.    The Court stated that although it had never referred to the groundwater estate as “dominant” as the mineral estate clearly is, “the estate is dominant for the same reason a mineral estate is; it is benefited by an implied right to the reasonable use of the surface.”  Although groundwater is generally owned by the surface owner, where it has been severed, the Court’s holding means that the groundwater owner has the implied right–regardless of deed language–to use as much of the surface as is reasonably necessary to produce the groundwater.  The rationale behind the mineral estate, and now the surface estate, being considered dominant is the idea that a person is unable to produce the mineral or groundwater estate without making some use of the surface of the land to drill the wells to extract the substances.  This is a key holding that may have major impacts on Texas landowners.
4. The accommodation doctrine applies to groundwater owners.  “We have applied the doctrine only when mineral interests are involved.  But similarities between mineral and groundwater estates, as well as their conflicts with surface estates, persuade us to extend the accommodation doctrine to groundwater rights.”  The Court found it necessary to apply the accommodation doctrine to resolve this dispute because the implied reasonable use of the surface given to the groundwater owner and the right to make “necessary or incidental” use of the surface granted in the deed simply did not resolve the questions at issue in this case.

In summary, the Supreme Court held “that the accommodation doctrine applies to resolve conflicts between a severed groundwater estate and the surface estate that are not governed by t he express terms of the parties’ agreement.”

The Court next turned to the injunction issued by the trial court, finding it simply too broad as it essentially prohibits the City from taking any action to drill wells, which it clearly has the right to do.  For example, the current injunction denies them from drilling any wells or erecting any power lines, despite the deed language clearly allowing them to do these things.  Thus, the injunction was lifted and the case sent back to the trial court for further proceedings.

Concurring Opinion 

Three Justices signed an concurring opinion, rather than join in the majority opinion detailed above.  [Read full opinion here.]  These Justices agreed with the outcome of the case–namely that the accommodation doctrine does apply to groundwater–but wrote separately to make clear that this application occurs when the parties’ agreement does not address the disputed issue.  “The accommodation doctrine only applies to groundwater rights…when the parties’ dispute is not governed by the express terms of the parties’ agreement.  When the parties’ agreement expressly addresses the dispute, it is unnecessary and improper for courts to imply rights and obligations through the accommodation doctrine.”

Using this baseline, the concurring Justices would hold that the deed at issue in this case expressly answers where the City may drill it wells–anywhere on the property.  Unlike the majority opinion, the concurrence finds that the deed is not silent on this issue.  It expressly allows the City the right to drill water wells “at any time and location” to access the groundwater.  Thus, regardless of whether the wells are drilled on the north edge of the ranch, or in the middle of the sand dunes and native grass, the deed gives the City the right to drill.  Because of this, the concurring Justices would not apply the accommodation doctrine to this issue and would not require the City to adopt alternative plans for different well sites.

On the other hand, the concurrence agrees that the deed is silent on where and how the city may construct access roads and power lines.  Unlike the language regarding well locations–which allows wells to be drilled at any time and location–roads may be built only where “necessary and incidental” to the operations.  Because the phrase “necessary and incidental” is open to disagreement, the accommodation doctrine would apply to this portion of the dispute.

Take Away Points

1. A person can never predict what a Court will do.  Many legal scholars were quite confident that the Supreme Court would not apply the accommodation doctrine to groundwater, or would simply not reach the question of its application at all and decide this case on other grounds.  This case is a great reminder that one can never bet on what a Court (or jury) will do!
2. Groundwater severances can create multiple complex issues.  Anyone dealing with groundwater severances–whether seeking to retain groundwater rights when selling a property or seeking to purchase groundwater rights from another–should consult an attorney to ensure that the agreements and deeds drafted sufficiently protect the parties’ rights.  Here, for example, even 9 Supreme Court Justices could not decide whether the deed language signed by the parties’ expressly addressed an issue.  This is simply too important of an issue not to seek legal counsel.
3. Groundwater is a dominant estate.  This portion of the opinion has been overlooked by some, but may be extremely important for surface owners who do not own the groundwater rights.  By deeming groundwater a dominant estate, the Supreme Court decision will allow groundwater owners the implied right to use a much of the surface estate as is reasonably necessary to produce groundwater, without payment to or permission from the surface owner.  We have seen significant burdens placed on Texas surface owners due to this same situation with regard to minerals.  [For more information on this, read this prior blog post.]
4. The surface owner must still prove that the accommodation doctrine prohibits certain conduct.  Perhaps the key practical consideration for Texans is this:  Although the Court held that the accommodation doctrine may apply to groundwater cases, that does not mean that a surface owner will be able to prohibit a groundwater owner from making certain uses of the land to produce the groundwater.  Under Texas law, the accommodation doctrine steps in to protect the surface owner only when three conditions are met.  These are:  (1) the groundwater owner’s use of the surface substantially impairs an existing surface use; (2) the surface owner has no available, reasonable alternative to continue the surface use; and (3) the groundwater owner has a reasonable, customary, industry-accepted method to access and produce the water and allow continuation of the surface owner’s use.  If any one of these three conditions are not met, the doctrine does not apply and the groundwater owner is not required to accommodate the surface user.  Historically, surface owners have not fared that well under this doctrine in court.  For example, read this prior blog post on the Merriman v. XTO Energy case.
5. Stay tuned….  In many ways, this case leaves more questions than it answers.  How will the accommodation doctrine apply to the facts of this case?  Given the Court’s pronouncement regarding the similarities between oil and water, what other cases may seek to impose “oil only” legal concepts to groundwater law?  How specific will deed language need to be in order for the accommodation doctrine not to apply?  There are likely going to be many more cases to come.  The Texas Tribune wrote an interesting article addressing some of these issues.