Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Webb v. North Hills Group, Inc.

Supreme Court of West Virginia

June 9, 2017

DANNY WEBB and DANNY WEBB CONSTRUCTION, INC., Respondent Below, Petitioners
v.
NORTH HILLS GROUP, INC, Petitioner Below, Respondent

         Fayette County Civil Action No. 16-C-9

          MEMORANDUM DECISION

         Petitioners, respondents below, Danny Webb ("Mr. Webb") and Danny Webb Construction, Inc. ("Webb Construction"), by counsel George A. Patterson, III, Ronda L. Harvey, and Roger G. Hanshaw, appeal from an order entered June 7, 2016, by the Circuit Court of Fayette County. By that order, the circuit court denied the motion to dismiss of Mr. Webb and Webb Construction (collectively "Webb Petitioners") and further concluded that Respondent, petitioner below, North Hills Group, Inc. ("North Hills Group"), was entitled to a declaration for termination of an Oil and Gas Lease entered into with Webb Construction. Additionally, by the order, the circuit court granted an injunction against the Webb Petitioners directing that they cease and desist any further activities on the leased property. The Webb Petitioners raise nine assignments of error, which we have distilled and summarized into six relevant issues, i.e., whether the circuit court erred by: (1) failing to apply the clear and unambiguous terms of the Oil and Gas Lease and otherwise failing to apply properly the terms of the lease in concluding that North Hills Group had a right to terminate it; (2) failing to address the estoppel effect of North Hills Group's acceptance of certain payments; (3) disregarding the testimony of the West Virginia Department of Environmental Protection ("WVDEP") representative; (4) admitting improper extrinsic evidence and inadmissible hearsay and opinion evidence; (5) piercing the corporate veil of Webb Construction; and (6) granting the cease and desist injunction. North Hills Group, by counsel Kevin W. Thompson and David R. Barney, filed a timely response, seeking to have this Court affirm the order of the circuit court.

         This Court has considered the parties' briefs, the appendix record designated for our review, the pertinent authorities, and oral argument. We find no new or substantial questions of law or prejudicial error, and affirm, albeit on different reasoning, the lower court's termination of the Oil and Gas Lease as well as its issuance of the cease and desist injunction. However, our de novo review compels the conclusion that the circuit court's piercing of the corporate veil of Webb Construction, without supporting evidence, was clear error thereby meeting the limited circumstances for issuance of a memorandum decision reversing the circuit court on that ground. For these reasons, a memorandum decision affirming, in part, and reversing, in part, the decision of the circuit court is appropriate pursuant to Rule 21(c) and (d) of the Rules of Appellate Procedure.

         North Hills Group is a small West Virginia corporation with real estate holdings in Fayette County, West Virginia. There are five families involved in the corporation. One person is an original shareholder and the remaining shareholders consist of heirs to parents or spouses. Patricia Hamilton is the current President of North Hills Group and testified on its behalf during the course of the proceedings before the circuit court. Mr. Webb is the sole shareholder and President of Webb Construction, a West Virginia corporation engaged in the oil and gas business including the trucking of waste or disposal fluids from oil and gas operations to underground injection disposal sites in Fayette County, West Virginia.

         On or about April 17, 2008, the North Hills Group, by its then President, Philip D. Mooney, entered into an Oil and Gas Lease with Webb Construction. The Oil and Gas Lease described land situated in Fayette County, West Virginia, consisting of some 3, 624 acres, more or less, as conveyed to North Hills Group by deed dated August 1, 1975. We observe that the Oil and Gas Lease contains traditional clauses that one would expect to find in an oil and gas lease in West Virginia.[1] Of significance here, the Oil and Gas Lease contains a granting and land description paragraph and primary and secondary term paragraphs providing for termination unless extended by payment of a delay rental. Additionally, and somewhat atypical of traditional oil and gas leases in West Virginia, a paragraph was included that granted Webb Construction the right to inject salt water or brine in any well proven unproductive of oil, gas, and/or coalbed methane, and to store gas in any depleted formation. This injection and/or storage right was said to continue beyond the primary or secondary term of the lease and was to continue the Oil and Gas Lease for so long as salt water or brine injection or gas storage continued together with an annual injection payment of $3, 624.00.

         Much of the parties' dispute centers around two paragraphs in the Oil and Gas Lease. The first, unnumbered, paragraph, which is the granting provision, states that North Hills Group grants and leases the land to Webb Construction

for the purpose of prospecting, exploring by geophysical and other methods, drilling both verically (sic) and horizontally, mining, operating for, producing and storing oil and/or natural gas and/or coalbed methane (hereinafter along with natural gas collectively called and included in the word "gas"), or all three, including, but not as a limitation, casinghead gas, casinghead gasoline, gas-condensate (distillate), coalbed methane and any substance, whether similar or dissimilar, produced in a gaseous state, together with the right to construct and maintain pipelines, telephone and electric lines, storage and transfer tanks, broadcast or communication towers, ponds, roadways, plants, equipment and structures thereon which are necessary to produce, save, store and take care of said oil and gas, and the further exclusive right to inject air, gas, water, salt water, brine and other fluids from any source into the subsurface strata and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of said land, alone or jointly with neighboring land, for the production, saving, storing and taking care of oil and gas and the injection of air, gas, water, brine and other fluids into the subsurface strata. . . .

(Emphasis added).

         The second primarily disputed paragraph is number 14, which provides:

Lessee is further granted the right to inject salt water or brine in any new well or wells drilled or located upon the leased premises which prove unproductive of oil and or gas and/or coalbed methane in addition to the lessee's existing licensed salt brine disposal wells, provided such activities are licensed by the State and/or Federal government and to store natural gas in any depleted formation thereunder, and in the event such salt brine injection and/or such gas storage enterprise continues beyond the primary or secondary term of this lease, then the lease shall continue in full force and effect so long as lessee shall continue paying lessor annually thereafter the sum of Three Thousand Six Hundred Twenty-Four Dollars ($3, 624.00) for such privilege so long as such activity continues.

(Emphasis added).

         In September 2008, shortly after entering into the Oil and Gas Lease, Webb Construction obtained a permit from the WVDEP to use a well on the leased property, identified as well 508 or NHG 1A ("508/1A"), as an injection well for oil and gas waste water. The WVDEP permit documents of record provide a description of materials to be injected into the 508/1A well as "Oil and Gas waste fluids (produced and flowback), [2]corrosion inhibitor, bacteria control, Hcl sticks." (Footnote added). The WVDEP well permit and/or repermitting application documents indicate that the North Hills Group 508/1A well "was originally drilled and completed by Peake Petroleum Company in 1982 to a depth of 280'. It was determined to be an unsuccessful project, the Weir Sandstone was perforated in 1983 and the Ravencliff formation was plugged in 1986." Importantly, the permit application provided that "[i]n 2008 the well was worked over and converted into a Class 2D oil and gas waste water UIC well."[3] Webb Construction's application further indicated that "[t]his well and plant has been operating as a Class 2D injection facility for oil and gas waste fluids since 2002." The permit documents also indicate that Webb Construction is "authorized to inject Class II fluids brought to surface in connection with conventional oil or natural gas production and may be commingled with waste water from gas plants. . . ."

         Although Mr. Webb testified that approximately $80, 000.00 was spent to rework the 508/1A well in an effort to obtain production, there is nothing in the record documenting that Webb Construction applied for or obtained a permit from WVDEP to allow Webb Construction to drill on the 2008 leased premises or rework the 508/1A well for production purposes. With respect to his efforts to rework the 508/1A well, Mr. Webb testified that he injected so much water into the disposal well on his own deeded adjacent property that he hoped "it would push gas to [the 508/1A] well." At one point, according to Mr. Webb, there was gas pressure, but it was lost. That is when the decision was made to turn the 508/1A well into an injection well. Mr. Webb testified that it was "sort of a two-part thing. You really couldn't lose. If it didn't produce gas, we could always convert it to an injection well."

         We observe that the record is somewhat muddled concerning the leased premises and the 508/1A well due to the fact that Webb Construction operates oil and gas waste water injection facilities that include the neighboring property with a permitted injection disposal well. The record is to the effect that, in 2001, North Hills Group sold Webb Construction an approximately five acre parcel of property adjacent to the leased premises at issue here. The 2001 deed additionally conveyed all the right, title, and interest in and to an unplugged and unproductive gas well that was located on the deeded property and identified as Well 460 or North Hills Group 1. This well was first drilled in 1981 by Amoco and included the right to inject salt water or brine as disposal in the Weir Formation. Mr. Webb testified that in connection with the five acre parcel sale, he told the representatives of North Hills Group that he would be injecting salt water or brine. To Mr. Webb, the terms "salt water" and "brine" are "all the same as" waste water from natural gas operations. Mr. Webb indicated that he had been operating with injection of natural gas waste water on his deeded property since 2001. Initially, he used pits for the waste fluids of coalbed methane operations which were high in chlorides. Those pits have been closed and cleaned out. Tanks were installed and are currently in use. At some point, apparently subsequent to entering into the Oil and Gas Lease, Webb Construction installed pipelines running from the operations on the deeded property to the 508/1A well on the leased premises for the purpose of pumping fluids from the tanks to the 508/1A well.

         On behalf of North Hills Group, Ms. Hamilton testified that she attended a Fayette County Commission meeting in November 2014, where she heard discussion regarding fracking[4] waste water operations taking place in Fayette County. Subsequently, she learned that residents of the area were representing that Webb Construction was performing these operations on North Hills Group property. This information began an investigation of the property by North Hills Group that resulted, among other things, in their conclusion that exploration and drilling had never commenced on the leased premises and that substances other than salt water or brine had been injected into the 508/1A well. Thus, the North Hills Group Board met and determined that the Oil and Gas Lease had terminated and undertook efforts to effect termination. By letter dated July 24, 2015, North Hills Group informed Webb Petitioners that the Oil and Gas Lease was terminated due, in part, to a lack of development operations and the injection of off-site waste material other than salt water, brine, or natural gas. North Hills Group requested that injection activity cease and that, within a reasonable time, equipment be removed, the premises reclaimed, and the well shut down in accordance with regulatory requirements. They further indicated that remediation of ground and surface waters may be required. Webb Construction disputed that the Oil and Gas Lease had terminated. Later, North Hills Group refused to accept the December 17, 2015, annual injection payment of $3, 624.00. Thereafter, North Hills Group filed its Petition for Declaratory Judgment and for Injunctive Relief.

         Mr. Webb testified that he believed Webb Construction had the absolute right to inject fluid of any kind from any source so long as it was within compliance guidelines of his WVDEP permit. He considers anything that comes out of a natural gas well to be "produced fluid" that can be injected under the permit. He also acknowledges that he does not make any determination as to whether "produced fluid" contains fracking fluid because, in his experience, 99.9 percent of all natural gas wells have been fracked. Thus, he expects there to be diesel and oil range substances in flowback fluids together with what he calls "produced fluid." Webb Construction hauls and injects fluids from natural gas wells making no distinction about the nature or composition of the water. Webb Construction has collected fluids at fracking sites that then have been injected into the 508/1A well. The way the Webb Construction business is operated, anything that comes out of a natural gas well can go back in a permitted natural gas well, regardless of the make-up of the fluid. He stated that he had no idea how much fluid he had injected. Nor did he know what was in the injected fluid as ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.