Oil and gas company slaps City of Dallas with $30 million lawsuit by Claire St. Amant, February 13, 2014, dallas.culturemap
Fort Worth-based Trinity East Energy is suing the City of Dallas for breach of contract and fraud related to the City Council’s denial of natural gas drilling permits. In 2008, Trinity East paid more than $19 million for oil and gas leases on parklands and city property in the Barnett Shale. The lawsuit references “written and oral assurances” from then-city manager Mary Suhm that Trinity East would be allowed to drill in parklands and in the floodplain. “This is about a deal, plain and simple. We had a deal with the City of Dallas, and they went back on it,” said Trinity East president Stephen Fort. In August 2013, Dallas City Council denied Trinity East the right to drill on its leased land, citing city code and a task force recommendation against the permits. Four months later, the council approved a 1,500-foot setback from parklands and residential property for all drilling projects, effectively banning the practice in Dallas city limits.
In the lawsuit, Trinity East says it invested more than $30 million in the project. Total projected losses for the lifetime of the wells exceed several hundred million dollars. “Facing a $90 million budget shortfall in 2007, city leaders raised much-needed revenue by asking energy companies, including Trinity East, to submit proposals to lease city property and drill for oil and gas,” the statement reads in part. The lawsuit alleges that Trinity East worked in good faith with city officials to design drilling equipment for use in the floodplain and relied on assurances from Suhm and other staffers in the company’s decision to purchase the leases. Throughout the five-year fracking debate, council members, including Mayor Mike Rawlings, mentioned the possibility of Trinity East taking legal action. [Emphasis added]
Trinity East Is Suing the City of Dallas For Reneging on Fracking Leases [Updated] by Eric Nicholson, February 13 2014, Dallas Observer
It’s been six months since the Dallas City Council rejected applications from Trinity East Energy to drill for natural gas on city-owned land it had paid $19 million to lease five years earlier. But no one really expected that to be the end of the fight. The company had spent too much money to go down that easy. Besides, it had been assured that it would be allowed to drill, no matter that those assurances were made as part of a side deal orchestrated by then-City Manager Mary Suhm. The news today that Trinity East is suing the city to recover tens of millions of dollars it says it lost in its attempt to drill on the city-owned plots, should surprise no one.
In the suit, Trinity East claims fraud, breach of contract and unconstitutional taking.
The deal, Trinity East says, was binding. Suhm was authorized to negotiate the lease by the City Council. On August 15, 2008, the same day that the lease was approved, the suit says that Suhm “signed a letter to Trinity officials stating that she was ‘reasonably confident'” that the company would obtain the right to use all of the tracts included in the agreement for drilling operations. Two pieces of land in particular were key to Trinity East’s plans: the 22-acre “Radio Tower Tract,” just west of the city-owned Luna Vista Golf Course and the Gun Club Tract near the Elm Fork gun range. Without that parcels to serve as drill sites, the company would be unable to tap into the natural gas trapped below thousands of additional acres leased from the city and private landowners. Both sites were on land in the floodplain or defined as parkland, drilling on which is allowed under a revision of gas drilling rules passed by the City Council passed in September 2007, provided a company can obtain a specific use permit.
SUPs for both sites were guaranteed by Suhm and city staff, Trinity East argues, which is why it shelled out $19 million, then several million more surveying and prepping the sites. “This is about a deal, plain and simple. We had a deal with the city of Dallas and they went back on it,” says Trinity East president Stephen Fort. “The city made promises to us and took our money. They sold us minerals but then denied us the ability to extract them.”
But Suhm didn’t have the authority to guarantee that Trinity East would be allowed to drill. That was always up to the City Council, which has the final say over whether or not to grant any SUP. Shouldn’t Trinity East have realized that it was taking a political gamble? Trinity East didn’t come to the city asking to drill; the city issued a request for proposals, then called the company to make sure they wanted to bid. Throughout the extensive negotiations with city staff, it was always clear that they would be allowed to drill. “What happens politically, or what happens with certain people protesting, that’s really kind of irrelevant,” Fort says. “This was about a deal we had, and the city backed out of it.” “We don’t really like litigation,” he added, “but we expect to be compensated.” Trinity East doesn’t specify a dollar figure for the damages it’s seeking from the city. There’s the $19 million it paid for the lease and the more than $11 million spent on site prep. Then, there’s the “hundreds of millions” Trinity East claims in lost profits.
Here’s a copy of Trinity East’s complaint: Trinity East vs City of Dallas