Texas Court Upholds Arbitration Award in Bitterly-Disputed South Texas Oil and Gas Contamination Dispute

The First Court of Appeals, sitting in Houston, has affirmed the decision of an arbitration panel which had ruled in favor of the claims for personal injury and property damages resulting from Forest Oil Corporation’s oil and gas exploration and production activities on the McAllen Ranch in South Texas. The ranch comprises over 27,000 acres, and its value, unimpaired by environmental contamination, is more than $65 million.

The panel of arbitrators ruled 2 to 1 in favor of the McAllen Ranch interests, who alleged that Forest Oil’s operations on the property resulted in the illegal release of hazardous substances and contaminants onto the surface and into the groundwater, and also caused personal injuries to James McAllen, the owner of the ranch.

Contesting the panel’s decision, Forest Oil argued to the Court of Appeals that the arbitrators unlawfully usurped the jurisdiction of the Texas Railroad Commission that has exclusive or primary jurisdiction over such contamination and remediation. The Court of Appeals rejected this argument, and affirmed the award of $15 million in actual property damages, $500,000 in exemplary damages, and $500,000 to James McAllen, and $6 million in attorney’s fees. The Court of Appeals also rejected Forest Oil’s argument that one of the arbitrators had a conflict of interest and the award should not prevail because of this. The case is Forest Oil Corp. v. El Rucio Land and Cattle Company, Inc., et al.

The opinion is very long, but it contains a very useful discussion of primary and exclusive jurisdiction in Texas law.

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