NO. 03-0355

IN THE SUPREME COURT OF TEXAS

FPL FARMING, LTD.,

Petitioner, v.

TEXAS NATURAL RESOURCE CONSERVATION COMMISSION and

ENVIRONMENTAL PROCESSING SYSTEMS, L.C., Respondents.

On Petition for Review from the Court of Appeals for the Third Judicial District of Texas

PETITIONER’S BRIEF ON THE MERITS

J. BRETT BUSBY State Bar No. 24031778 MAYER, BROWN, ROWE & MAW LLP 700 Louisiana, Suite 3600 Houston, Texas 77002-2730 Telephone: (713) 221-1651 Facsimile: (713) 224-6410 MARY W. CARTER State Bar No. 03926300 BLACKBURN CARTER, P.C. 2900 Weslayan, Suite 400 Houston, Texas 77027 Telephone: (713) 524-1012 Facsimile: (713) 524-5165

ATTORNEYS FOR PETITIONER

i

IDENTITY OF PARTIES AND COUNSEL

Petitioner: FPL Farming, Ltd. (“FPL”) Counsel for Petitioner: On appeal: J. Brett Busby Mayer, Brown, Rowe & Maw LLP 700 Louisiana Street, Suite 3600 Houston, Texas 77002-2730

At trial and Mary W. Carter on appeal: Blackburn Carter, P.C. 2900 Weslayan, Suite 400

Houston, Texas 77027 Respondents: Texas Natural Resource Conservation

Commission (“TNRCC”) (now known as Texas Commission on Environmental Quality)

and Environmental Processing Systems, L.C. (“EPS”)

Counsel for Respondents: Mr. W. Steven Walker Attorney at Law

223 East College Street Grapevine, TX 76051 Representing: Environmental Processing

Systems, L.C. Mr. Anthony Grigsby Ms. Linda B. Secord

Assistant Attorneys General Office of the Attorney General Natural Resources Division – MC 015 P.O. Box 12548, Capitol Station Austin, TX 78711-2548

Representing: Texas Natural Resource Conservation Commission

TABLE OF CONTENTS

Page

ii

IDENTITY OF PARTIES AND COUNSEL ..................................................................................i

STATEMENT OF THE CASE.................................................................................................vii

STATEMENT OF JURISDICTION..........................................................................................viii

ISSUES PRESENTED...........................................................................................................viii

STATEMENT OF FACTS ........................................................................................................1

SUMMARY OF THE ARGUMENT ...........................................................................................5

ARGUMENT .........................................................................................................................6

I. Because Disposing of Waste Under FPL’s Land Impairs its Rights, TNRCC Had No Authority to Issue the Amended Permits. ..................................................6

A. FPL Has Full Ownership Rights to the Groundwater and Subsurface Under Its Land..............................................................................................7

B. The Court of Appeals Erroneously Limited Owners’ “Existing Rights” in Property to Portions They Presently Intend to Use..................................9

1. The court of appeals’ rule is contrary to the Water Code. .....................10

2. The court of appeals’ rule eliminates property rights protected under Texas common law. ..............................................................11

3. The rule of capture does not limit FPL’s right to exclude pollution, and the ad coelum doctrine is not at issue. .....................13

4. The court of appeals’ rule produces unreasonable results. ..................16

C. Polluting FPL’s Groundwater and Occupying its Subsurface With Waste Impair its Property Rights. ..............................................................17

II. TNRCC Authorized an Unlawful Taking of FPL’s Property.....................................20

A. The Physical Occupation of FPL’s Property With Subsurface Waste is a Taking.........................................................................................................21

B. TNRCC’s Taking is Unlawful. ........................................................................25

TABLE OF CONTENTS (continued)

Page

iii

III. At a Minimum, a Remand is Required......................................................................26

Conclusion and Prayer......................................................................................................26

Certificate of Service ........................................................................................................28

iv

INDEX OF AUTHORITIES

Cases

Bartley v. Sone, 527 S.W.2d 754 (Tex. Civ. App. – San Antonio 1974, writ ref’d n.r.e.)........................ 9

Broad v. Sealaska Corp., 85 F.3d 422 (9th Cir. 1996)........................................................................................... 25

Brown v. Lundell, 344 S.W.2d 863 (Tex. 1961) ......................................................................................... 14

Cargal v. Cargal, 750 S.W.2d 382 (Tex. App. – Fort Worth 1988, no writ)............................................. 12

Chance v. BP Chems., Inc., 670 N.E.2d 985 (Ohio 1996) ................................................................................... 11, 15

City of Arlington v. City of Fort Worth, 873 S.W.2d 765 (Tex. App. – Fort Worth 1994, writ dism’d w.o.j.)............................ 12

City of Austin v. Travis County Landfill Co., 73 S.W.3d 234 (Tex. 2002) ........................................................................................... 24

City of Sherman v. Public Utility Comm’n of Texas, 643 S.W.2d 681 (Tex. 1983) ........................................................................................... 8

Davis v. State, 119 S.W.3d 359 (Tex. App. – Waco 2003, no pet.)...................................................... 10

Dolan v. City of Tigard, 512 U.S. 374 (1994) ................................................................................................ 23, 24

Dolenz v. National Bank of Tex. at Fort Worth, 649 S.W.2d 368 (Tex. App. – Fort Worth 1983, writ ref’d n.r.e.)................................ 10

Geochemical Surveys v. Dietz, 340 S.W.2d 114 (Tex. Civ. App. – Austin 1960, writ ref’d n.r.e.) ............................... 14

Gregg v. Delhi-Taylor Oil Corp., 344 S.W.2d 411 (Tex. 1961) ..................................................................................... 8, 13

GTE S.W. Inc. v. Public Util. Comm’n, 10 S.W.3d 7 (Tex. App. – Austin 2000, no pet.) .................................................... 21, 24

v

Gulf Oil Corp. v. Alexander, 291 S.W.2d 792 (Tex. Civ. App. – Amarillo), writ ref’d n.r.e., 295 S.W.2d 901 (Tex. 1956)............................................................... 14

Gulf Oil Corp. v. Hughes, 371 P.2d 81 (Okla. 1962) .............................................................................................. 14

Hastings Oil Co. v. Texas Co., 234 S.W.2d 389 (Tex. 1950) ..................................................................................... 8, 16

Hawaii Housing Auth. v. Midkiff, 467 U.S. 229 (1984) ...................................................................................................... 25

Hendler v. United States, 952 F.2d 1364 (Fed. Cir. 1991).........................................................................21, 22, 23

Houston & Tex. Cent. Ry. Co. v. East, 81 S.W. 279 (Tex. 1904) ................................................................................................. 8

Humble Oil & Ref. Co. v. West, 508 S.W.2d 812 (Tex. 1974) ......................................................................................... 14

Johnson v. Phillips Petroleum Co., 93 S.W.2d 556 (Tex. Civ. App. – Amarillo 1936, no writ) .......................................... 12

Jung v. Neraz, 9 S.W. 344 (Tex. 1888) ................................................................................................. 14

Kaiser Aetna v. United States, 444 U.S. 164 (1979) ...................................................................................................... 22

Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) ....................................................................................20, 21, 22, 23

Marcus Cable Associates, L.P. v. Krohn, 90 S.W.3d 697 (Tex. 2002) ................................................................................. 9, 17, 21

Mayhew v. Town of Sunnyvale, 964 S.W.2d 922 (Tex. 1998) ......................................................................................... 24

Mongrue v. Monsanto Co., 1999 WL 970354 (E.D. La. 1999) ....................................................................12, 13, 15

Moore v. Reed, 668 S.W.2d 847 (Tex. App. – El Paso 1984, writ ref’d n.r.e.)........................................ 9

vi

Pecos County Water Control & Improvement Dist. No. 1 v. Williams, 271 S.W.2d 503 (Tex. Civ. App. – El Paso 1954, writ ref’d n.r.e.)............................ 7, 8

Pickens v. Harrison, 252 S.W.2d 575 (Tex. 1952) ......................................................................................... 14

Pixley v. Clark, 35 N.Y. 520 (1866)) ........................................................................................................ 8

Railroad Comm’n v. Manziel, 361 S.W.2d 560 (Tex. 1962) ......................................................................................... 14

Raymond v. Union Tex. Petroleum Co., 697 F. Supp. 270 (E.D. La. 1988) ................................................................................. 13

Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865 (Tex. 1973) ........................................................................................... 8

Sipriano v. Great Spring Waters of America, Inc., 1 S.W.3d 75 (Tex. 1999) ............................................................................................... 13

Spann v. City of Dallas, 235 S.W. 513 (Tex. 1921) ............................................................................................... 9

Texas Co. v. Burkett, 296 S.W. 273, 278 (Tex. 1927)..................................................... 7, 8

Texas Co. v. Giddings, 148 S.W. 1142 (Tex. Civ. App. – Dallas 1912, no writ)............................................... 14

Torrington Co. v. Stutzman, 46 S.W.3d 829 ............................................................................................................... 26

United States v. Causby, 328 U.S. 256 (1946) ...................................................................................................... 15

United States v. Shurbet, 347 F.2d 103 (5th Cir. 1965)........................................................................................... 8

Watson v. Brazos Elec. Power Co-op., Inc., 918 S.W.2d 639 (Tex. App. – Waco 1996, writ denied)............................................... 12

Yee v. City of Escondido, 503 U.S. 519 (1992) ...................................................................................................... 21

vii

Statutes

30 TEX. ADMIN. CODE § 331.2(38)..................................................................................... 7

30 TEX. ADMIN. CODE § 331.63(b)................................................................................... 19

30 TEX. ADMIN. CODE § 80.117....................................................................................... 19

30 TEX. ADMIN. CODE § 80.17.......................................................................................... 19

TEX. GOV’T CODE § 2001.171 ............................................................................................ 4

TEX. GOV’T CODE § 2001.174(2)................................................................................ 19, 20

TEX. GOV’T CODE § 22.001(a)(3) ....................................................................................... x

TEX. GOV’T CODE § 22.001(a)(6) ....................................................................................... x

TEX. GOV’T CODE § 311.023(5)........................................................................................ 16

TEX. HEALTH & SAFETY CODE § 361.321 .......................................................................... 4

TEX. NAT. RES. CODE § 91.174 ........................................................................................ 17

TEX. R. APP. P. 43.3(b) ..................................................................................................... 26

TEX. WATER CODE § 11.021 ............................................................................................. 11

TEX. WATER CODE § 27.002(8) .......................................................................................... 7

TEX. WATER CODE § 27.011 ......................................................................................... 2, 25

TEX. WATER CODE § 27.036 ............................................................................................. 18

TEX. WATER CODE § 27.051(a)(2) ....................................................................6, 10, 18, 19

TEX. WATER CODE § 36.001(5) .......................................................................................... 7

TEX. WATER CODE § 36.002 ............................................................................................... 7

U.S. CONST. amend. V ...................................................................................................... 20

Other Authorities

BLACK’S LAW DICTIONARY 1216 (6th ed. 1990)................................................................ 9

David Dana & Thomas Merrill, PROPERTY: TAKINGS 191 (2002) ................................... 25

viii

1 Dan B. Dobbs, LAW OF REMEDIES § 5.8(1)-(2) (2d ed. 1993)....................................... 12

Environmental Protection Agency, Class I Underground Injection Control Program: Study of the Risks Associated with Class I Underground Injection Wells 33 (March 2001).............................................................................................................................. 19

RESTATEMENT OF PROPERTY § 7 cmt. b (1936).................................................................. 9

RESTATEMENT (SECOND) OF TORTS § 158 (1965) ...................................................... 12, 18

Texas A&M Agriculture Program, Frontiers of Discovery: Water Purification Program Goes Portable, LIFESCAPES (Spring 2003) .................... 18

L.S. Tellier, Liability for Pollution of Subterranean Waters, 38 A.L.R.2d 1265 (1954) .............................................................................................. 14

Jacqueline Weaver, The Politics of Oil and Gas Jurisprudence: The Eighty-Six Percent Factor, 33 Washburn L.J. 492 (1994)........................................................................... 14

1 H. Williams & C. Meyers, Oil & Gas Law § 204.5 ....................................................... 14

ix

STATEMENT OF THE CASE

Nature of the Case: This is an administrative appeal concerning the proper interpretation of a statute intended to ensure that industrial waste from injection wells will not impair the property rights of nearby owners. Petitioner challenges a well permit application, contending that the administrative agency and the lower courts erred by restricting the property rights of Texas landowners and authorizing the physical occupation of petitioner’s property with waste.

Trial Court: The Honorable F. Scott McCown, 345th Judicial

District Court, Travis County. Trial Court’s Disposition: The district court upheld the administrative decision.

A copy of the administrative findings and conclusions is attached hereto as Appendix A. A copy of the trial court’s judgment is attached hereto as Appendix B.

Parties in the Court of Appeals: Appellant: FPL Farming, Ltd. (“FPL”) Appellees: Texas Natural Resource Conservation

Commission (“TNRCC”) and Environmental Processing Systems, L.C. (“EPS”)

Court of Appeals: The Court of Appeals for the Third Judicial District of

Texas. Panel: Justices Kidd, Yeakel and Patterson

Court of Appeals’ disposition: The court of appeals affirmed the judgment, concluding that the statute only protected existing and intended uses of property, and that there had not been an unconstitutional taking of petitioner’s property. A copy of the court’s memorandum opinion, authored by Justice Patterson, is attached hereto as Appendix C.

x

STATEMENT OF JURISDICTION

This Court has jurisdiction of this case under TEX. GOV’T CODE § 22.001(a)(3),

because it involves the construction of a key statute that defines the balance between the

property rights of Texas landowners and the permitting authority of a powerful agency

with statewide responsibility for waste disposal. This construction is critical to the

determination of the case.

In addition, this Court has jurisdiction under TEX. GOV’T CODE § 22.001(a)(6).

The construction of the statute at issue here is a matter of first impression that is likely to

arise frequently in the future because of its significant impact on property rights. The

case is important because the court of appeals resolved the statutory and takings issues in

a way that places significant, and heretofore unknown, limitations on a landowner’s right

to exclusive possession of its property.

ISSUES PRESENTED

1. Are an owner’s “existing rights” in property impaired when another party disposes

of waste and pollutes the groundwater under the property without permission?

2. Under the Takings Clause, may the State authorize a third party to physically

occupy space under private land with waste for a non-public purpose and without

paying compensation?

1

STATEMENT OF FACTS

This is an appeal of a state agency’s decision authorizing EPS to inject large

volumes of liquid industrial waste into an underground reservoir. Although the injection

wells are located on property of FPL’s neighbor, the waste will migrate to pollute the

groundwater and occupy the subsurface under FPL’s property. Without any

compensation for this pollution and use of its subsurface, FPL is being forced to give up

the valuable rights that make private property private: the rights to possess it, exclude

others from it, and control the terms upon which others are permitted to occupy it.

The Waste Injection Facility

The relevant facts are not in dispute. EPS owns and operates a Class I non-

hazardous waste injection facility on five acres that it leases in Liberty County, Texas. 4

AR Item 47, FF 1-2, 171 (attached as Appendix A); 6 AR Ex. A-1, at 1. The facility

handles liquid waste from petrochemical and chemical blending companies that may

contain petroleum hydrocarbons, contaminants below regulatory limits, halogenated

organic compounds in concentrations less than 1,000 mg/l, acid waste, organic waste,

caustic waste, and/or metallic waste. 4 AR Item 55, at 2; 5 AR Item 57, at 42. EPS

injects these wastes down a well into the Frio formation, a groundwater reservoir that

contains saltwater, at a depth of 7,350 to 8,200 feet below ground level. App. A, FF 29,

37.

1 Citations to the administrative record (AR) include the volume number and the item or exhibit number, as well as specific page or line numbers where appropriate. Citations to TNRCC’s order, which is reproduced in Appendix A, refer to the relevant findings of fact (FF) or conclusions of law (CL) by number.

2

FPL owns two separate tracts of land very close to the EPS waste disposal facility.

6 AR Ex. P-1, ln. 48-50. The first tract, of approximately 116 acres, is directly across the

road and only 875 feet from the EPS well itself. The second tract, of approximately 965

acres, is located 2,000 feet to the northwest of the EPS well. 6 AR Ex. P-3, at 4. A map

showing the waste facility and the FPL tracts (labeled C, E, N, and O) is attached as

Appendix D. See 6 AR Ex. P-1 (ln. 61), Ex. P-2.

The Original Permits

In Texas, a waste injection well cannot be drilled or operated without a permit

from TNRCC. TEX. WATER CODE § 27.011. EPS originally applied for two injection

well permits in 1996. These applications requested an average waste injection rate for

each well of 68 gallons per minute, with a maximum injection volume of 35,740,800

gallons per year. App. A, FF 3. Based on these rates, the waste would spread 880 feet

from the well within 10 years and 1,477 feet within 30 years. 6 AR Ex. P-3, at 10. Thus,

FPL’s smaller tract would be impacted by the waste injected under the original permits,

while the second piece of property would not. 6 AR Ex. P-9.

When FPL’s predecessor in interest opposed these permits on the ground that the

waste would impair its property rights, EPS agreed to resolve the dispute by paying it

$185,000. 6 AR Ex. A-1. FPL’s predecessor did not waive its right to challenge later

amendments to the permits. App. A, FF 63; 3 AR Item 36, at 20.

In September 1996, TNRCC issued permits to EPS for the two wells. One of the

wells, WDW-316, was completed in 1997, but the second, WDW-317, has not yet been

constructed. App. A, FF 3, 5.

3

The Amended Permits

In July 1999, EPS applied for the amended permits at issue here. The application

requested a nearly 10-fold increase in the amount of waste EPS can inject into the

underground reservoir. 1 AR Item 1. Specifically, the amendments would increase the

average injection rate for each well to 660 gallons per minute, and increase the maximum

injection volume to 346,896,000 gallons per year. App. A, FF 4.

It is undisputed that EPS’s waste will reach both FPL properties under the

amended permits. The plume of injected waste will travel outward in a circular pattern

from the injection wells toward FPL’s property. 6 AR Ex. A-4, at VII-14. There is no

geologic fault or blocking mechanism between the wells and the FPL properties. There

is, however, a “sealing fault” approximately 5500 feet west of the current injection well,

and another fault 1950 feet to the south. App. A, FF 44; 6 AR Ex. P-3, at 7; 6 AR Ex. A-

4, at 66. These faults cause the waste to move further towards the FPL properties to the

northwest and east. 6 AR Ex. A-8, at 21; 5 AR Item 57, at 141-42.

Consistent with the experts’ testimony, TNRCC found that the waste plume from

only one well injecting at 660 gallons per minute will extend 3,021 feet within 10 years

and 5,145 feet within 30 years. App. A, FF 45; 6 AR Ex. A-4, at VII-13. As mentioned

above, the current well is only 875 feet from FPL’s eastern property, and 2,000 feet from

FPL’s northwestern property. Thus, according to the expert calculations, EPS’s waste

will extend under FPL’s eastern property after only one year of operating under the

amended permits, and under FPL’s northwestern property during the remaining five-year

term of the amended permits. See 6 AR Ex. P-8 (calculating one-year waste plume radius

4

of 1,007 feet and five-year radius of 2,164 feet). The experts confirm that EPS’s activity

will have other effects under FPL’s property as well. For example, by injecting waste

under pressure into the reservoir, EPS will increase the pressure underneath FPL’s

property anywhere from 130-150 psi. 6 AR Ex. A-4, Fig. VII-1.

Thus, it is undisputed that EPS’s waste will physically occupy the subsurface of

both FPL properties in less than 10 years. In fact, EPS’s own expert admits that by

granting these amended permits and authorizing a 10-fold increase in waste injection,

TNRCC has authorized waste from EPS’s facility to invade FPL’s property. 5 AR Item

57, at 152, 154.

FPL’s Challenge to the Amended Permits

FPL and TNRCC’s Office of Public Interest Counsel opposed the amended

permits on the ground that they would impair FPL’s existing property rights in violation

of Chapter 27 of the Water Code. E.g., 2 AR Items 28-29. FPL also contended that the

amended permits should be denied because they would authorize an unconstitutional

taking. 2 AR Item 28. Despite this opposition, the administrative law judges issued a

proposal for decision recommending that the amendments be granted. 3 AR Item 36. By

a divided 2-1 vote, TNRCC agreed and issued an order granting EPS’s application for

amended permits. App. A; 5 AR Item 58, at 8. After FPL’s motion for rehearing was

overruled by operation of law, the amended permits were issued on April 24, 2001. 4 AR

Item 55.

FPL filed a petition for judicial review in the District Court of Travis County

under TEX. GOV’T CODE § 2001.171 and TEX. HEALTH & SAFETY CODE § 361.321,

5

arguing that TNRCC’s decision violated constitutional and statutory provisions, exceeded

its authority, and was arbitrary and capricious. CR 5, 32. The trial court issued an order

upholding the administrative decision without analysis. CR 374 (attached as Appendix

B).

FPL appealed, and the Third Court of Appeals affirmed the district court’s

judgment. Appendix C. The court of appeals held that FPL’s property rights were

limited to its “existing or intended use[s] of the deep subsurface.” Id. at 8. In the court’s

view, no such uses would be harmed by the presence of EPS’s waste under FPL’s land,

and therefore the Water Code authorized the permits. Id. at 8-9. On the takings issue, the

court of appeals held that while physical occupation of property may destroy the owner’s

right of exclusive possession, the owner must also prove destruction of its rights to use

and to dispose of the property in order to show a taking. Id. at 10. Applying this test, the

court rejected FPL’s takings argument on the ground that it had not demonstrated how the

invading waste destroyed its use and disposal rights. Following the denial of its motion

for rehearing, FPL petitioned this Court for review.

SUMMARY OF THE ARGUMENT

The question in this case is whether the State can authorize a third party to dispose

of waste and pollute the groundwater under private land without obtaining the owner’s

permission or paying compensation. Respondents and the court of appeals would have

this Court believe that there is nothing wrong with this scenario. But their narrow

conception of FPL’s rights is fundamentally inconsistent with both the Water Code’s

recognition of groundwater ownership and a hundred years of Texas property rights

6

caselaw. As these sources confirm, FPL’s existing rights were impaired when TNRCC

authorized EPS to physically occupy the usable subsurface below FPL’s land with waste.

Under the Water Code, therefore, it was improper to issue a permit to inject the waste.

In addition, by authorizing the physical occupation of FPL’s property, TNRCC has

unlawfully taken that property for a non-public use and without just compensation. The

court of appeals’ holding to the contrary conflicts with precedents of Texas courts and the

U.S. Supreme Court, and significantly limits a landowner’s ability to demand

compensation for partial physical takings of its property. For these reasons, the Court

should grant review and reverse TNRCC’s decision to issue the permits.

ARGUMENT

I. Because Disposing of Waste Under FPL’s Land Impairs its Rights, TNRCC Had No Authority to Issue the Amended Permits.

In order to issue an injection well permit, TNRCC must find “that no existing

rights . . . will be impaired.” TEX. WATER CODE § 27.051(a)(2). To get over that hurdle

in this case, TNRCC and the court of appeals drastically restricted Texas landowners’

property rights in their soil and groundwater. TNRCC takes the position that “FPL does

not have an absolute and exclusive property interest in the deep subsurface below its

property,” and thus “does not have an absolute right to exclude others from the deep

subsurface.” App. A, CL 10-11. The court of appeals held that FPL’s property rights,

assuming it had any, were limited to preventing harm to an “existing or intended use of

the deep subsurface.” App. C at 8.

7

This idea that an owner’s “existing rights” in property are limited to portions it

presently intends to use is contrary to both statute and caselaw, and will have pernicious

effects on an owner’s ability to control its property. Property rights are much broader

than the mere right to use, and an owner has never before been required to show damage

to an existing or intended use in order to protect its property from invasion. This Court

should grant review and reject this significant rollback of property rights.

A. FPL Has Full Ownership Rights to the Groundwater and Subsurface Under Its Land.

Unlike TNRCC and the court of appeals, the Water Code unequivocally

recognizes FPL’s full ownership rights in groundwater:

The ownership and rights of the owners of the land . . . in groundwater are hereby recognized, and nothing in this code shall be construed as depriving or divesting the owners . . . of the ownership or rights, except as those rights may be limited or altered by rules promulgated by a [groundwater conservation] district.

TEX. WATER CODE § 36.002. Under the Code, “groundwater” is a broader term than

“fresh water,” and it includes all “water percolating below the surface of the earth.” TEX.

WATER CODE § 36.001(5); cf. TEX. WATER CODE § 27.002(8); 30 TEX. ADMIN. CODE §

331.2(38) (defining “fresh water”). Percolating waters consist of those that ooze, seep, or

filter through the ground beneath the surface without a definite channel, and all

underground waters are presumed to be percolating absent evidence to the contrary.2

2 Texas Co. v. Burkett, 296 S.W. 273, 278 (Tex. 1927); Houston & Tex. Cent. Ry. Co. v. East, 81 S.W. 279, 280-81 (Tex. 1904); Pecos County Water Control & Improvement Dist. No. 1 v. Williams, 271 S.W.2d 503, 506 (Tex. Civ. App. – El Paso 1954, writ ref’d n.r.e.).

8

Thus, the saltwater in the Frio reservoir under FPL’s land is groundwater owned by FPL.

Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865, 866-67 (Tex. 1973).

This statutory recognition of FPL’s ownership rights springs from a long line of

Texas common-law decisions following the “absolute ownership” rule. This rule states

that a landowner owns both the soil under the surface of its land and groundwater

percolating through the soil, and has the same property rights to them as to other parts of

its land.3 As this Court put the matter nearly a hundred years ago, groundwater “is the

same as land, and cannot be distinguished in law from land. So the owner of land is the

absolute owner of the soil and of percolating water, which is a part of, and not different

from, the soil.” Houston & Tex. Cent. Ry. Co. v. East, 81 S.W. 279, 281 (Tex. 1904)

(quoting Pixley v. Clark, 35 N.Y. 520, 527 (1866)).

Under this rule, the subsurface and groundwater under FPL’s land belong to FPL,

which has the traditional rights of an owner to those parts of its property. These rights

encompass more than the right to use the property discussed by the court of appeals.

3 Burkett, 296 S.W. at 278 (percolating waters “were the exclusive property of [the landowner], who had all the rights incident to them one might have as to any other species of property”); United States v. Shurbet, 347 F.2d 103, 106 (5th Cir. 1965) (“In Texas the common law rule prevails that the owner of the land owns the soil and the percolating water which is a part of the soil”); Williams, 271 S.W.2d at 505 (“the landowner owns the percolating water under his land …, and such is based on a concept of property ownership. This rule apparently has been inherited from the English common law rule, which in turn appears to go back to the Roman law.”). See also City of Sherman v. Public Utility Comm’n of Texas, 643 S.W.2d 681, 686 (Tex. 1983) (observing that Texas follows “absolute ownership theory regarding groundwater”); Gregg v. Delhi-Taylor Oil Corp., 344 S.W.2d 411 (Tex. 1961) (recognizing subsurface ownership rights and holding that trespass by fractures can be enjoined); Hastings Oil Co. v. Texas Co., 234 S.W.2d 389, 398 (Tex. 1950) (recognizing trespass on subsurface ownership rights by slant hole oil well); Bartley v. Sone, 527 S.W.2d 754, 760 (Tex. Civ. App. – San Antonio 1974, writ ref’d

(cont’d)

9

They also include the rights to possess, to control, and to exclude others from the

property.4 In fact, “[a] property owner’s right to exclude others from his or her property

is recognized as one of the most essential sticks in the bundle of rights that are commonly

characterized as property.” Marcus Cable Assocs., L.P. v. Krohn, 90 S.W.3d 697, 700

(Tex. 2002).

B. The Court of Appeals Erroneously Limited Owners’ “Existing Rights” in Property to Portions They Presently Intend to Use.

TNRCC contends that the court of appeals assumed FPL had all of these rights.

Not so. Instead of using the doctrines just discussed to define what “existing rights” the

statute protects from impairment, the court of appeals held that the statute only protects

an “existing or intended use of the deep subsurface.” App. C at 8. This Court should

reject that narrow interpretation because it is contrary to statutory, common-law, and

constitutional principles. Based on those principles, as well as the unreasonable results

that the court of appeals’ rule will produce, the definition of “existing rights” should

extend to protect FPL’s traditional rights to possess, control, and exclude others from its

subsurface and groundwater.

(… cont’d)

n.r.e.) (“the owner of land owns the water under the surface, generally referred to by hydrologists as ‘ground water’”). 4 Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435 (1982); Spann v. City of Dallas, 235 S.W. 513, 514-15 (Tex. 1921); Moore v. Reed, 668 S.W.2d 847, 849 (Tex. App. – El Paso 1984, writ ref’d n.r.e.); RESTATEMENT OF PROPERTY § 7 cmt. b (1936); BLACK’S LAW DICTIONARY 1216 (6th ed. 1990) (defining property as “the right to dispose of a thing in every legal way, to possess it, to use it, and to exclude every one else from interfering with it”). Texas courts also use these elements in determining whether a person has a reasonable expectation of privacy in property, as well as whether a person has converted property. E.g., Davis v. State, 119

(cont’d)

10

1. The court of appeals’ rule is contrary to the Water Code.

As an initial matter, the court of appeals’ narrow view of FPL’s rights conflicts

with the express terms of the Water Code. Section 36.002 of the Code, quoted above,

recognizes FPL’s full ownership rights in groundwater and states that “nothing in this

code shall be construed as depriving or divesting” owners of those rights. Yet the court

of appeals construed the “existing rights” language in section 27.051 of the very same

Code to deprive FPL of those rights unless it could show harm to an “existing or intended

use” of its property. App. C at 8. Because this construction flouts the command of

section 36.002, it must be rejected.

Moreover, the court of appeals’ interpretation cannot even be squared with the

plain language of section 27.051 itself. As previously stated, that section provides that in

order to issue an injection permit, TNRCC must find “that no existing rights . . . will be

impaired.” TEX. WATER CODE § 27.051(a)(2). TNRCC argues that the court did not

construe the statutory phrase “existing rights,” but merely defined the term “impair.”

Resp. to Reh’g Mot. 2. While it is true the court defined “impair” to mean “harm,” App.

C at 7, how could the court possibly have come up with an “existing or intended use”

limitation based only on the word “impair”? No, what the court of appeals did was

conjure up the word “intended” out of nowhere, substitute the narrower concept of “use”

for the broader one of “rights,” and read the statute to require only “that no existing or

(… cont’d)

S.W.3d 359, 366 (Tex. App. – Waco 2003, no pet.); Dolenz v. National Bank of Tex. at Fort Worth, 649 S.W.2d 368, 370 (Tex. App. – Fort Worth 1983, writ ref’d n.r.e.).

11

intended uses will be harmed.” This interpretation should be dismissed as contrary to the

plain text of the statute.

The Water Code also defeats respondents’ attempt to limit FPL’s groundwater

rights based on Chance v. BP Chemicals, Inc., 670 N.E.2d 985 (Ohio 1996). In Chance,

an Ohio statute specified that underground reservoirs of native saltwater were owned and

exclusively regulated by the state. Id. at 992. When waste injected into such a reservoir

migrated under the property of nearby owners, they sued for trespass under Ohio law.

Based on the statute, the court held that the owners “d[id] not enjoy absolute ownership

of waters of the state below their properties,” and that they had to show interference with

a foreseeable use of the subsurface to make out a damages claim for trespass. Id. at 992-

93 (emphasis added). This analysis does not apply in Texas, however, because section

36.002 provides that FPL owns the groundwater that EPS is polluting. Cf. TEX. WATER

CODE § 11.021 (state water does not include groundwater). As owner, FPL already has

rights to exclusive possession and control of its groundwater; it does not need to follow

the Ohio practice of using the groundwater in order to establish those rights by

appropriation.

2. The court of appeals’ rule eliminates property rights protected under Texas common law.

A second major flaw in the court of appeals’ narrow reading of “existing rights” is

that it leaves out a landowner’s rights to possess, to control, and to exclude others from

its property – all rights protected by Texas common law. Contrary to the court of

appeals’ approach, Texas law protects those rights against impairment even if no existing

12

or intended use of the property is at issue. Thus, if a person causes something

unauthorized to cross the boundary of an owner’s land, whether on or beneath its surface,

Texas courts will find a trespass and remedy it with an injunction or nominal damages

even if no actual damages have been shown. City of Arlington v. City of Fort Worth, 873

S.W.2d 765, 769 (Tex. App. – Fort Worth 1994, writ dism’d w.o.j.).5 The Restatement of

Torts follows the same rule. RESTATEMENT (SECOND) OF TORTS § 158 & cmt. i (1965).

Under both the Restatement and Texas law, the simple “fact that the possessor’s interest

in the exclusive possession of his land has been invaded by the presence of a person or

thing upon it without the possessor’s consent” is a sufficient injury to warrant relief. Id.

cmt. c; see Cargal v. Cargal, 750 S.W.2d 382, 385 (Tex. App. – Fort Worth 1988, no

writ).

EPS nevertheless argues that a few trespass cases from other jurisdictions support

the court of appeals’ view that an owner’s property rights are limited to its existing or

intended uses. Resp. to PFR 6. But those cases merely stand for the unremarkable

proposition, which is also true under Texas law, that a plaintiff who seeks damages for a

trespass must prove damage to a reasonable and foreseeable use of its property. E.g.,

Mongrue v. Monsanto Co., 1999 WL 970354, at *4 (E.D. La. 1999); Raymond v. Union

5 See also Watson v. Brazos Elec. Power Co-op., Inc., 918 S.W.2d 639, 645 (Tex. App. – Waco 1996, writ denied) (“Every unauthorized entry upon land is a trespass even if no damage is done”); Johnson v. Phillips Petroleum Co., 93 S.W.2d 556, 558 (Tex. Civ. App. – Amarillo 1936, no writ) (nominal damages); 1 Dan B. Dobbs, LAW OF REMEDIES § 5.8(1)-(2) (2d ed. 1993) (slightest trespass injures right to exclusive possession and will support claim for nominal damages even when it causes neither harm to the land nor loss of possession); id. § 5.10(3) (injunctions will issue to protect purely possessory interests even where there is no threat to use and enjoyment of land).

13

Tex. Petroleum Co., 697 F. Supp. 270, 274-75 (E.D. La. 1988); Chance, 670 N.E.2d at

986, 993. Here, FPL is not seeking damages; it is seeking to protect its rights to

exclusive possession and control of its land. Because Texas law protects those rights

based simply on an unauthorized entry beneath the land, the court of appeals erred in

refusing to protect those rights absent proof of harm to an existing or intended use of the

land.

3. The rule of capture does not limit FPL’s right to exclude pollution, and the ad coelum doctrine is not at issue.

Respondents next contend that whatever the scope of FPL’s ownership rights

generally, its rights to the groundwater and subsurface under its property are limited by

the rule of capture and by the supposed rejection of the ad coelum doctrine. But these

concepts are not as sweeping as respondents would have this Court believe. Neither

concept creates a whole new regime of property ownership especially for the subsurface,

and neither supports the court of appeals’ reading of the statute.

FPL’s groundwater rights are qualified by the common-law rule of capture, but

that rule does not authorize the pollution of groundwater in place below another person’s

land. See Gregg v. Delhi-Taylor Oil Corp., 344 S.W.2d 411, 419 (Tex. 1961) (rule of

capture does not affect ordinary trespass remedies). The rule of capture would allow EPS

to extract a virtually unlimited amount of groundwater from its wells without liability,

even if the groundwater under FPL’s land was thereby depleted. E.g., Sipriano v. Great

Spring Waters of America, Inc., 1 S.W.3d 75 (Tex. 1999). But at least since 1912, Texas

courts have recognized a distinction between this unlimited right of use and conduct

14

“polluting and befouling the subterranean supply by surface methods that could be

avoided or removed . . . .” Texas Co. v. Giddings, 148 S.W. 1142, 1144 (Tex. Civ. App.

– Dallas 1912, no writ).

This distinction makes practical sense. In the former case, the adjoining

landowner has a simple remedy: drill its own well to drain a share of the reservoir. But in

cases involving pollution of water under adjoining land, drilling a well to produce the

polluted water accomplishes nothing. Thus, Texas courts historically have granted relief

to landowners who are or will be affected by groundwater pollution.6 FPL is similarly

entitled to relief from EPS’s pollution of its groundwater.

TNRCC and EPS point out that this Court also has recognized a “negative” rule of

capture, holding that the injection of additional compatible saltwater to promote recovery

of natural resources did not constitute a trespass when the water migrated under adjoining

land. Railroad Comm’n v. Manziel, 361 S.W.2d 560 (Tex. 1962). This rule has been

criticized by commentators and rejected by other jurisdictions, and has not been applied

outside the oil and gas context.7 To petitioner’s knowledge, only two courts have

considered whether this rule applies to the subsurface injection of waste, and both have

6 Texas Co., 148 S.W. 1142; see, e.g., Brown v. Lundell, 344 S.W.2d 863 (Tex. 1961); Pickens v. Harrison, 252 S.W.2d 575 (Tex. 1952); Jung v. Neraz, 9 S.W. 344 (Tex. 1888); Geochemical Surveys v. Dietz, 340 S.W.2d 114 (Tex. Civ. App. – Austin 1960, writ ref’d n.r.e.); Gulf Oil Corp. v. Alexander, 291 S.W.2d 792 (Tex. Civ. App. – Amarillo), writ ref’d n.r.e., 295 S.W.2d 901 (Tex. 1956); see also Gulf Oil Corp. v. Hughes, 371 P.2d 81 (Okla. 1962) (waterflooding); L.S. Tellier, Liability for Pollution of Subterranean Waters, 38 A.L.R.2d 1265 (1954). 7 See 1 H. Williams & C. Meyers, Oil & Gas Law § 204.5; Jacqueline Weaver, The Politics of Oil and Gas Jurisprudence: The Eighty-Six Percent Factor, 33 Washburn L.J. 492, 510-14 (1994); cf. Humble Oil & Ref. Co. v. West, 508 S.W.2d 812, 816 (Tex. 1974) (noting that Manziel balanced competing interests in oil and gas context).

15

rejected it. See Chance v. BP Chems., Inc., 670 N.E.2d 985, 991 (Ohio 1996); Mongrue

v. Monsanto Co., 1999 WL 970354, at *3 (E.D. La. 1999). As the Chance court

explained,

the injection in [Manziel] was directly related to oil and gas extraction, and was fundamentally dissimilar to the unique situation before us, which involves the injection of waste byproducts from the production of industrial chemicals. . . . [W]e find the negative rule of capture inapplicable . . . .

670 N.E.2d at 991. Thus, the positive and negative rules of capture do not limit FPL’s

right to prevent EPS from polluting its groundwater.

Regarding the ad coelum doctrine, EPS strives mightily to convince this Court that

FPL’s position is based on an outmoded assertion of ownership extending from the

heavens above its property to the core of the Earth below. This argument is a red herring.

Whatever the modern state of the ad coelum doctrine, FPL’s assertions of property rights

to the subsurface and groundwater under its land are based not on it but on the Texas

statutes and cases cited in Part I.A. above. Moreover, FPL has never taken the position

that its ownership of the subsurface extends to the center of the earth. Instead, FPL takes

a position consistent with the cases cited by EPS – that the landowner owns at least as

much of the space above and below the ground as he can use in connection with the land.

See United States v. Causby, 328 U.S. 256, 264 (1946) (air rights). FPL only claims

rights as far down as it can reasonably make use of its property, regardless of whether it

actually has made use of the property or has a present intention to do so. Here, it is

indisputable that FPL could make use of its subsurface because EPS is, in fact, making

16

use of it by disposing of its waste there. Accordingly, the ad coelum doctrine has nothing

to do with this case.

4. The court of appeals’ rule produces unreasonable results.

Finally, this Court should reject the court of appeals’ rule equating property rights

with use because it produces unreasonable results. See TEX. GOV’T CODE § 311.023(5)

(court interpreting statute may consider consequences of a particular construction).

TNRCC apparently has never denied a permit based on an impairment of “existing

rights,” 5 AR Item 57, at 156, and this trend undoubtedly will continue under the court of

appeals’ restrictive reading of that concept.

Moreover, by holding that an owner only has rights to portions of its property that

it presently intends to use, the court of appeals’ rule allows the government and private

parties to occupy or use other parts of the owner’s property with impunity. For example,

if an owner has no present intent to use an oil reservoir under its land, the court of

appeals’ rule would allow a neighbor to drill a horizontal well under the owner’s

premises and siphon off the oil without impairing the owner’s subsurface rights. But see

Hastings Oil Co. v. Texas Co., 234 S.W.2d 389, 398 (Tex. 1950). Similarly, if part of an

owner’s property is inaccessible to livestock, or is intentionally not used in order to keep

it in a natural state, a neighbor could throw trash on that portion at will. Because these

invasions of the owner’s property do not impair its rights under the court of appeals’ rule,

it would be difficult if not impossible for the owner to stop them, much less to defend its

title against a claim of adverse possession based on the neighbor’s use of his property.

17

The court of appeals’ rule also is troubling because it creates a conflict with the

Takings Clause for the reasons discussed in Part II below. Courts should interpret

legislative enactments in order to avoid constitutional infirmities such as takings

violations. See Marcus Cable Assocs., L.P., 90 S.W.3d at 707. For this additional

reason, this Court should discard the court of appeals’ rule.

TNRCC responds with the dire prediction that recognizing FPL’s subsurface and

groundwater rights effectively will ban injection wells. But this spectre is not a reason to

ignore the plain text of the statute or the authorities discussed above, and in any event it is

overblown. Injection wells can be, and often are, positioned so that the waste plume will

not move beyond the property where the well is located. 5 AR Item 57, at 136-37. In

addition, just as unitization may be used to mitigate the adverse effects of waterflooding

on adjacent landowners in the oil and gas context, groundwater management districts can

be created under Chapter 36 of the Water Code to deal with waste that crosses property

lines. Finally, the party injecting the waste can always reach a settlement with affected

landowners (as these parties did before EPS sought to expand its operations), or the

Legislature could authorize condemnation as it has for natural gas storage. See TEX.

NAT. RES. CODE § 91.174. Therefore, TNRCC’s concerns offer no basis for denying

FPL its full ownership rights.

C. Polluting FPL’s Groundwater and Occupying its Subsurface With Waste Impair its Property Rights.

For all of the above reasons, this Court should reject the court of appeals’ rule and

define “existing rights” to include a landowner’s rights to possess, control, and exclude

18

others from its subsurface and groundwater. Under this definition, the landowner’s rights

are impaired when the State permits a third party to physically occupy the usable

subsurface below the owner’s land with waste. The undisputed factual findings in this

case establish that EPS’s waste will occupy the subsurface of FPL’s land. App. A, FF

15-16, 45; see RESTATEMENT (SECOND) OF TORTS § 158 cmts. c, i (interest in exclusive

possession is invaded by act done with knowledge that it will to a substantial certainty

result in entry of foreign matter). Because FPL’s ownership rights include the rights to

control and to exclude others from its subsurface and groundwater, those rights “will be

impaired” by the invasion of the waste and the consequent loss of control. TEX. WATER

CODE § 27.051(a)(2).

In addition, although a showing of “existing or intended use” is not required, the

waste invasion is much more than a mere impairment, and its impact on FPL is far from

speculative. In its unpolluted state, the saltwater or “native brine” in the Frio reservoir

has value. For example, it can be used in the production of polyvinyl chloride, it can be

purified for use in rangeland restoration activities, and minerals can be extracted from it.8

Yet now, if FPL drilled a well to produce saltwater as contemplated by Water Code §

27.036, the water would be polluted and unusable. 5 AR Item 57, at 93, 99-100. Also,

factors such as the increased subsurface pressure created by EPS’s waste injection would

make it more difficult and expensive for FPL to drill and operate waste injection wells on

8 5 AR Item 57, at 100; Texas A&M Agriculture Program, Frontiers of Discovery: Water Purification Program Goes Portable, LIFESCAPES (Spring 2003), available at http://agprogram. tamu.edu/publications/lifescapes/spring03/frontiers.htm.

19

its own property.9 Furthermore, EPS’s payment of $185,000 to settle its dispute with

FPL over the much smaller original injection project is evidence that FPL’s subsurface

rights have value, and/or that its surface rights may decrease in value based on the public

knowledge that its land is sitting on a pool of industrial waste.10 The knowledge that

Class I wells like EPS’s nearby well have a 65% mechanical integrity failure rate can

only contribute to that decrease.11

These factors confirm that EPS’s waste injection will impair FPL’s property

rights. Accordingly, EPS has not carried its burden to show, by a preponderance of the

evidence, that no existing rights will be impaired as a result of its application. 30 TEX.

ADMIN. CODE §§ 80.17, 80.117. Under section 27.051(a)(2) of the Water Code,

therefore, TNRCC should not have issued the amended permits.

* * *

In sum, TNRCC’s interpretation of section 27.051(a)(2) is legally erroneous, and

its actions in issuing the amended permits violated the statute and exceeded its authority

thereunder. Tex. Gov’t Code § 2001.174(2)(A), (B), (D). Because the only reasonable

interpretation of the statute leads to the conclusion that the amended permits will impair

9 5 AR Item 57, at 101; see also id. at 134-35 (drilling second injection well where one is already operating is unusual); 30 TEX. ADMIN. CODE § 331.63(b) (limits on injection pressure to avoid fractures or fluid movement out of injection zone). 10 EPS argues that this payment was made only to avoid delay, but the settlement agreement provides that it was also made to resolve disputes between the parties. 5 AR Item 57, Ex. A-1. 11 See Environmental Protection Agency, Class I Underground Injection Control Program: Study of the Risks Associated with Class I Underground Injection Wells 33 (March 2001), available at http://www.epa.gov/safewater/uic/classonestudy.pdf.

20

FPL’s rights, this error was prejudicial. Therefore, this Court should reverse the court of

appeals’ judgment and deny the amended permits.

II. TNRCC Authorized an Unlawful Taking of FPL’s Property.

This Court should reverse TNRCC’s order granting the permit amendments for a

second reason as well: by authorizing the physical occupation of FPL’s property with

subsurface waste, TNRCC has taken a portion of that property for a non-public use and

without just compensation in violation of the United States Constitution. See TEX.

GOV’T CODE § 2001.174(2)(A) (constitutional violation is ground for reversal of

administrative decision). The court of appeals’ holding that no taking occurred conflicts

with decisions of Texas courts and the U.S. Supreme Court, and makes it much more

difficult for a landowner to demand compensation for a physical occupation of its land.

To invoke the Takings Clause, a party must show that its private property is being

taken for a public use without just compensation. U.S. CONST. amend. V. As to the

private property element, even if this Court agrees with the court of appeals’ narrow

statutory definition of “existing rights,” there can be no dispute that one of FPL’s

property rights for constitutional purposes is the right to exclusive possession of its

property. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435 (1982).

The court of appeals erred in holding that this right has not been taken here.

21

A. The Physical Occupation of FPL’s Property With Subsurface Waste is a Taking.

When the government authorizes a physical occupation of property, no matter how

slight, courts invariably find a taking.12 Instead of focusing on the size or character of the

occupied area, courts consider whether the government has compelled the property owner

to surrender its right to exclude others from physical use of the property. See GTE S.W.

Inc. v. Public Util. Comm’n, 10 S.W.3d 7, 11-12 (Tex. App. – Austin 2000, no pet.).

Thus, as this Court has recognized, physical occupations are takings “even if they occupy

only relatively insubstantial amounts of space and do not seriously interfere with the

landowner’s use of the rest of his land.” Marcus Cable Assocs., L.P., 90 S.W.3d at 707

(quoting Loretto, 458 U.S. at 430). In Loretto, for example, the state compelled landlords

to allow cable companies to install equipment on their apartment buildings in exchange

for a nominal fee. 458 U.S. at 423-25. Even though the equipment occupied only 1.5

cubic feet of one landlord’s property, the Court concluded that this government-

authorized occupation by a private company constituted a taking for which compensation

was required. Id. at 438.

In this case, similarly, EPS’s own expert concedes that the TNRCC permit

amendments authorize EPS to occupy the subsurface of FPL’s property. 5 AR Item 57,

at 154. By ignoring FPL’s rights, TNRCC has forced FPL to surrender its right to

12 Yee v. City of Escondido, 503 U.S. 519, 522 (1992); Loretto, 458 U.S. at 434-35 (taking uniformly found for physical occupation “without regard to whether the action . . . has only minimal economic impact on the owner”); id. at 436-37 (constitutional protection “cannot be made to depend on the size of the area permanently occupied”); Hendler v. United States, 952 F.2d 1364, 1374-78, 1381 (Fed. Cir. 1991).

22

exclude EPS from physically using its subsurface property to dispose of waste. Nothing

more is required to show a taking.

Instead of following this analysis, the court of appeals invented its own taking test.

Purporting to rely on Loretto, the court held that government action must destroy not only

an owner’s right to exclusive possession of land, but also its rights to use and dispose of

that land, in order to constitute a compensable taking. App. C at 10. This test is much

too restrictive in light of Kaiser Aetna v. United States, 444 U.S. 164, 179-80 (1979),

which requires compensation when a physical invasion destroys the right to exclude. In

addition, the test misreads Loretto. The portion of that case cited by the court of appeals

merely provided an alternative rationale for the per se rule that a physical occupation of

property is a taking; it did not purport to establish a three-part test for determining which

physical occupations are severe enough to constitute takings. See Loretto, 458 U.S. at

435.

Moreover, the court of appeals’ test was rejected in Hendler v. United States, 952

F.2d 1364 (Fed. Cir. 1991). There, the district court had found no taking because the

government’s actions did “not purpor[t] to dispossess plaintiffs or limit their use of the

property,” and “were not necessarily inimical to simultaneous use of the property by

plaintiffs.” Id. at 1374. The court of appeals reversed, observing that this analysis

“misconceives the meaning and purpose of the constitutional protections underlying the

Fifth Amendment. The Government does not have the right to declare itself a co-tenant-

in-possession with a property owner. Among a . . . property owner’s . . . most cherished

23

rights is the right to be let alone.” Id.; see also id. at 1377 (“the concept of permanent

physical occupation does not require that in every instance the occupation be exclusive”).

Finally, this Court should reject the court of appeals’ test because it will have

untoward consequences. If an owner must show destruction of its rights to use and

dispose of property in order to prove a taking, it will be almost impossible to obtain

compensation for a physical occupation unless it affects significant portions of the

property. In fact, Loretto itself would come out differently under the court of appeals’

test. The Loretto opinion does not say that the small items of cable equipment on the roof

had any negative effect whatsoever on the landlord’s use of her apartment building. As

to disposal, the landlord bought the building without even knowing the equipment was

there. 458 U.S. at 424. Thus, under the court of appeals’ test, the Supreme Court erred in

holding that the presence of the equipment amounted to a taking by physical occupation.

The court of appeals’ test yields particularly harsh results when it is applied to

portions of land that are not being used. For example, in Dolan v. City of Tigard, 512

U.S. 374 (1994), the landowner could not use one area of her property that was in a flood

plain. Id. at 379. Because a physical occupation of this area by the town would not alter

the owner’s ability to use it, the court of appeals’ test would not require compensation.

Yet none of the parties in Dolan disputed that the owner had a right to just compensation

when an easement over the unusable portion of her property was taken for a public

24

greenway.13 Id. at 385. For this reason, as well as those discussed above, this Court

should reject the court of appeals’ taking test.

Respondents offer two other arguments against finding a taking, but neither is

persuasive. First, TNRCC contends that direct and immediate inference with land use is

required to show a taking. But that standard only applies to regulatory takings and to

nuisance-type activities that do not result in actual physical occupation of land, such as

periodic overflights in public airspace. City of Austin v. Travis County Landfill Co., 73

S.W.3d 234, 239 (Tex. 2002); Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 935 (Tex.

1998) (regulatory taking standard). It has no application to physical occupation cases like

this one.

Second, the court of appeals and TNRCC contend that no taking occurred because

regulations under the Water Code do not allow TNRCC to invade FPL’s property rights.

This argument is a non sequitur. Whether a governmental entity actually authorized acts

that constitute a taking is what matters. The fact that it was not permitted to do so by

statute or rule provides an independent basis for overturning the entity’s decision, as

discussed in Part I above, but it is irrelevant to the taking analysis. GTE S.W. Inc., 10

S.W.3d at 11-12. In this case, an injection well cannot be drilled or operated without a

TNRCC permit, and fact findings made during the permitting process establish that

13 Rather, the issue in Dolan was whether the owner could be required to give up this right in exchange for a discretionary public benefit. 512 U.S. at 385.

25

EPS’s injected waste will occupy the subsurface of FPL’s land.14 TEX. WATER CODE §

27.011; App. A, FF 15-16, 45. Thus, TNRCC authorized a taking of FPL’s property.

B. TNRCC’s Taking is Unlawful.

Given that TNRCC’s order constitutes a taking, it is constitutional only if the

taking is for a public use and just compensation is paid.15 Neither requirement has been

met here. As to public use, TNRCC expressly found that “No property will be taken for

public use, within the meaning of the Fifth Amendment to the United States Constitution,

by virtue of the operation of the injection wells . . . .” App. A, CL 14. In addition, the

administrative law judges were “not persuaded that the permit amendments are, in fact, a

public use of the subsurface. Rather, any migration of wastewater will be the result of

[EPS’s] private, commercial waste injection activities.” 3 AR Item 36, at 24. Both

respondents also have admitted consistently throughout this litigation that EPS’s

activities are not a public use.16 Because TNRCC’s amended permits authorize the taking

of property for a non-public use, they are unconstitutional and must be reversed

regardless of whether compensation was paid. See Hawaii Housing Auth. v. Midkiff, 467

U.S. 229, 241 (1984); Broad v. Sealaska Corp., 85 F.3d 422, 431 n.5 (9th Cir. 1996)

(“takings for a private use, as opposed to a public use, are presumptively

unconstitutional”).

14 TEX. WATER CODE § 27.011; App. A, FF 15-16, 45. 15 David Dana & Thomas Merrill, PROPERTY: TAKINGS 191 (2002). 16 E.g., EPS Resp. to Mot. for Reh’g 5; TNRCC Appellee’s Br. 35-36; EPS Appellee’s Br. 18-20; CR 155, 161-63; 3 AR Item 33, at 7, 12; 3 AR Item 34, at 3-4.

26

As to just compensation, because TNRCC and the courts below erroneously

concluded that none of FPL’s rights would be impaired by the amended permits, no

compensation has been paid. Nor does the Water Code contain any mechanism for

allowing a permit that is found to impair existing rights to go forward upon payment of

compensation. Based on these constitutional infirmities, the permit amendments should

be reversed.

III. At a Minimum, a Remand is Required.

Finally, if this Court disagrees with the above arguments, and agrees with the

court of appeals that a protesting party has the burden to show impairment of an “existing

or intended use” of its property in order to successfully oppose a waste injection permit, it

should remand in the interest of justice. At the time of the administrative hearing below,

no court had attempted to define the “existing rights” that the Water Code protects from

impairment. Even today, petitioner is unaware of any authority on that issue outside of

this litigation. Therefore, if this Court clarifies what must be proved to show that existing

rights will be impaired, it should allow FPL Farming an opportunity to offer that proof on

remand. Torrington Co. v. Stutzman, 46 S.W.3d 829, 840-41; TEX. R. APP. P. 43.3(b).

CONCLUSION AND PRAYER

The errors by TNRCC and the court of appeals, in misinterpreting the Water Code

and creating new and unjustified limits on traditional property rights, warrant review by

this Court. Petitioner requests that the Court grant its petition, reverse the decision of the

court of appeals and render judgment denying the amended permits. In the alternative,

FPL requests that this case be remanded to TNRCC for further administrative hearings

27

consistent with a proper application of the relevant statutory and constitutional

provisions. FPL requests all other relief to which it may be justly entitled.

Respectfully submitted,

MAYER, BROWN, ROWE & MAW LLP

______________________________ J. BRETT BUSBY State Bar No. 24031778 MAYER, BROWN, ROWE & MAW LLP 700 Louisiana, Suite 3600 Houston, Texas 77002-2730 Telephone: (713) 221-1651 Facsimile: (713)224-6410 MARY W. CARTER State Bar No. 03926300 BLACKBURN CARTER, P.C. 2900 Weslayan, Suite 400 Houston, Texas 77027 Telephone: (713) 524-1012 Facsimile: (713) 524-5165 ATTORNEYS FOR PETITIONER

28 HODB01 24509693.1 122203 1753C 03208571

CERTIFICATE OF SERVICE

I certify that a copy of the Petitioner’s Brief on the Merits was served on the

following counsel of record by overnight mail on this 22nd day of December, 2003:

Mr. W. Steven Walker 223 East College Street Grapevine, TX 76051 Representing: Environmental Processing Systems, L.C. Mr. Anthony Grigsby Ms. Linda B. Secord Assistant Attorneys General Office of the Attorney General Natural Resources Division – MC 015 300 West 15th Street, 10th Floor Austin, Texas 78701 Representing: Texas Natural Resource Conservation Commission

_____________________________ J. Brett Busby