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TEST DRILLING SERVICE CO. v. HANOR COMPANY

June 24, 2004.

TEST DRILLING SERVICE CO., Plaintiff,
v.
THE HANOR COMPANY, et al., Defendants.



The opinion of the court was delivered by: JEANNE SCOTT, District Judge

ORDER

This matter comes before the Court on five separate Motions for Partial Summary Judgment filed by the various Defendants. Plaintiff alleges claims for negligence against each Defendant. This action was removed to this Court from the Circuit Court of the Seventh Judicial Circuit, Greene County, Illinois. Removal was appropriate because of diversity of citizenship of the parties. See May 28, 2003 Order, (d/e 17). The Motions for Partial Summary Judgment are filed by: (1) The Hanor Company, Inc. (Hanor) (d/e 109), which Motion is joined by Terracon Consultants, Inc. (Terracon) and GSE Lining Technology, Inc. (GSE Lining); (2) Pig Improvement Co., Inc. (PIC) (d/e 113); (3) Agri-waste Technology, Inc. (Agri-waste) (d/e 114); (4) Envirotech Engineering & Consulting, Inc. (Envirotech) (d/e 118); and (5) Hog Slat Inc. (Hog Slat) (d/e 110), which Motion is also joined by GSE Lining. For the reasons stated below, each one of the Motions for Partial Summary Judgment is allowed in part and denied in part.

  BACKGROUND

  It is undisputed that in 1994, Plaintiff Test Drilling Service Co. (TDSCO) entered into three separate oil and gas leases covering property located in Greene County, Illinois. Each lease contained the following provision:
1. Lessor, for and in consideration of Ten Dollars ($10.00), in hand paid, the receipt of which is hereby acknowledged, and of the covenants and agreements hereinafter contained on the part of Lessee, has granted, demised, leased and let and by these presents does grant, demise, lease and let, exclusively unto Lessee for the purpose of exploring by geophysical and other methods, drilling and operating for and producing oil, liquid hydrocarbons, all gases, and their constituent products, injecting gas, waters, other fluids and air into subsurface strata, including the further right to inject water from other wells on adjoining lands and within the field of development, laying pipelines, storing oil, building tanks, electric transmission lines, ponds, powers, roads and structures thereon to produce, save, take care of, treat, process, store and transport said oil, liquid hydrocarbons, gases, and their constituent products, together with the right of ingress and egress thereto on to other land under lease to Lessee, the following described land in Greene County, State of Illinois, to wit: [description of property]. It is intended hereby to include herein all lands and interest therein contiguous to or pertinent to the above described land and owned or claimed by Lessor. For the purpose of making any payment based on acreage, said land and its constituent parcels shall be deemed to contain the acreage above stated whether they actually contain more or less. This lease shall cover all the interest in said land now owned by or hereafter vested in Lessor, even though greater than the undivided interest (if any) described above.
Agri-Waste Motion for Partial Summary Judgment, Ex. A. ¶ 1. Each lease also provided that:
Subject to the other provisions herein contained, this lease shall remain in force for a term of Two (2) years from this date (called "primary term"), and as long thereafter as oil, liquid hydrocarbons, gas or their respective constituent products, or any of them is produced from said land or land with which said land is pooled. . . .
Id., ¶ 2.
 
If operations for drilling are not commenced on said land or on land pooled therewith on or before one (1) year from this date, this lease shall terminate as to both parties, unless on or before one (1) year from this date lessee shall pay or tender to the lessor a rental of One Hundred Eighty Dollars Dollars [sic] ($180) which shall cover the privilege of deferring commencement of such operations for a period of twelve (12) months. In like manner and upon like payments or tenders, annually the commencement of said operations may be further deferred for successive periods of the same number of months, each during the primary term. . . .
Id., ¶ 4.

  Apparently the leases were still in effect in September/October 2000. TDSCO alleges that prior to October 2000, there was absolutely no evidence of contamination in any of the oil samples obtained from the property subject to the agreements. TDSCO began to remove oil in September 2000. In October 2000, TDSCO discovered that the oil was contaminated by bacteria and microbes of the kind found in animal and livestock waste products. The discovery of contaminants "rendered the entire quantity of oil extracted and existing in-situ and subject to the oil and gas mineral rights agreements unsaleable, unusable and absolutely worthless." First Amended Compl., (Compl.) ¶ 15. The contaminant has rendered the oil subject to the oil and gas agreements unsaleable and ruined the entire oil deposits in the area. Id. ¶ 17. The contaminant in the oil also caused TDSCO's pumping and storage equipment to become damaged and unusable. Id. ¶ 16.

  Each of the Defendants was or is involved in the design, construction, maintenance, and/or operation of hog confinement facilities adjacent to the land subject to TDSCO's oil and gas agreements. TDSCO claims that each Defendant "allowed leachate and animal waste to escape the confines of the commercial hog confinement facility and flow into plaintiff's mineral rights." Id. ¶¶ 73, 102, 132, 162, 192, 222, 252, 282, 312. TDSCO alleges that Defendants' failure to control leachate and animal waste caused it to sustain loss and permanent damage to property, including its mineral rights, and damage to its operation and equipment.*fn1

  TDSCO's Complaint consisted of two counts against each Defendant. The first count alleged negligence, and the second count alleged negligence per se. TDSCO sought the following damages: (a) costs incurred for the repair and restoration of TDSCO's property to restore it to its original condition; (b) a sum of money that represents the diminution in the market value; (c) a sum of money in compensation for the lost mineral rights of TDSCO's property; and (d) a sum of money for the loss of commercial use of TDSCO's property. On November 25, 2003, this Court dismissed each of the negligence per se claims against each Defendant See November 25, 2003 Order, (d/e 89).

  Defendants now move for partial summary judgment on the remaining negligence counts. They claim that any damages to the oil or to TDSCO's commercial expectations are barred by the economic loss doctrine set forth in Moorman Manufacturing Company v. National Tank Company, 91 Ill.2d 69, 435 N.E.2d 443 (Ill. 1982).

  SUMMARY JUDGMENT STANDARD

  Summary judgment shall be entered if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R. Civ. P. 56(c). At summary judgment, Defendants must present evidence which demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). The Court must consider the evidence presented in the light most favorable to TDSCO. Any doubt as to the existence of a triable issue of fact must be resolved against Defendants. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Once Defendants have produced evidence showing that they are entitled to summary judgment, TDSCO must present evidence to show that issues of fact remain. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 576 (1986). Illinois substantive law applies to TDSCO's remaining negligence claims, since the alleged tortious acts occurred in Illinois, and the real estate subject to the oil and gas leases is located in Illinois.

  ANALYSIS

  A. Moorman Economic Loss Rule Under Illinois law, economic damages are not recoverable in a tort action. Moorman, 91 Ill.2d at 69, 435 N.E.2d at 443. Under this doctrine, economic loss is defined as "damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits — without any claim of personal injury or damage to other property. . . ." In re Chicago Flood Litigation, 176 Ill.2d 179, 680 N.E.2d 265, 274 (Ill. 1997), quoting Moorman, 91 Ill.2d at 82 (emphasis added in In re Chicago Flood Litigation opinion).

  However, one exception to the economic loss rule is when the plaintiff sustained damage, such as "personal injury or property damage resulting from a sudden or dangerous occurrence." Id. at 275. Thus, the economic loss rule barring recovery in tort "applies even to plaintiffs who have incurred physical damage to their property if the damage is caused by disappointed commercial expectation, gradual deterioration, internal breakage, or other nonaccidental causes, rather than a dangerous event." Id. Even if there were a sudden, dangerous, or calamitous occurrence, the plaintiff must allege personal injury or property damage resulting from it to avoid a bar to recovery by the economic loss rule. Id. "To recover ...


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