Mediation Is Alternative To Litigation By David M . Cohen

B L A C K L I C K , OH.-The oil and gas business, like many others, is largely about relationships-relationships between oi l and gas lessors and lessees, between the industry and regulatory agencies, between oil and gas producers and equipment sup­pliers, between the industry and environ­mental groups, and between the oil and gas producer and the producer's customers. Of necessity, most o f these relationships wi l l need to last for many years. A positive relationship is better for all parties.

There are many forces pulling apart many of these relationships. Among them is the perception that there is a lot of money to be made and the producers want to make it, that the oil and gas lessees want to collect much of it, and that environmental concerns are largely being ignored.

Then there is the problem of trying to fit an almost square peg into a square hole. Older oi l and gas leases were not drafted by parties contemplating hydraulic fracturing to remove shale gas from for­mations more than a mile below the sur­face, the need for millions of gallons of water, large water impoundments, and 10-acre well pads.

There are the other issues inherent in the standard o i l and gas lease:

• What surface facilities can be con­structed and where can they be located?

• Are operations being conducted such that the lease term can be extended?

• Did the operations affect the potable water supply?

• Is the lessee diligently developing the reserves?

• What property is contiguous? • Is the royalty being calculated prop­

erly? • Was nonperformance the result of

force majeure? • In those areas where coalbed

methane is present, does the deed or lease grant the coalbed methane to the oil and gas producer?

A l l these are areas for potential disputes and, while at times it must occur to one or more of the parties that they would like to simply fix a particular problem and walk away, practically, that isn't an option. One party can't just terminate a long-term lease. Suppliers don't want to lose customers. Environmental and citizen groups can't just be ignored.

Problems With Litigation When there is a dispute, the first

thought is to litigate. Each party believes

that it has a sound legal position and w i l l prevail. In more contemplative moments, each party also may realize that relying on a judge's decision is risky, and taking the litigation course may leave the parties stressed, unsatisfied and bitter. Litigation tends to push the litigants apart, which is not good for a long-term relationship. I f the oil and gas lessee isn't getting along with the lessor, the lessor can create dif­ficulties that can affect the smooth func­tioning and profitability of the operation.

It is preferable i f the parties can discuss the issues and come to a resolution. How­ever, for various reasons it may become apparent that isn't likely. The parties may have come to the point where one of them refuses to talk to the other.

An attorney, in an attempt to be sup­portive of a client, may have given the impression that the client can't lose, and the client then concludes that i t would be foolish to settle. A n attorney may have tried to tell his client that his case is not iron clad, but the client refuses to hear this and discuss settlement, or a client may wonder i f his attorney is being too aggressive and hurting the possibility of settling.

More than 90 percent of cases settle before a judge issues a decision. Litigation involves many hours of work and expense, none of which help productivity. Discovery requests go back and forth. Each party likely wi l l need to acquire the information to respond to interrogatories, and prepare for and attend depositions. Each party's executives may well spend a large portion of their free time pondering litigation strategy and thinking about how they seem to be wasting their time. I t is time to explore options to litigation-generally known as alternative dispute resolution.

Dispute Resolution Increasingly, the form of alternative

dispute resolution parties are turning to to help settle their disputes is mediation.

With mediation, a trained neutral meets with the parties to work toward developing a mutually acceptable resolution. The process is voluntary. I f the parties reach a resolution, then an agreement is drafted and executed by the parties. Unl ike arbi-tration—another form of alternative dispute resolution-there is no person or panel that makes a binding decision. Also, gen­erally unlike arbitration, there is little or no discovery. Evidence is not submitted.

In mediation, the mediator probably w i l l request each party submit a position paper in which each party simply sets

forth its position. The parties may attach relevant documents. While the position paper and documents provide the mediator with background information that may help as he works with the parties, they are not part of any formal written record. The goal of mediation is to help the parties reach a settlement, not to determine who is legally right. The parties can disagree on who is legally correct and still reach a settlement and put the matter behind them.

Benefits Of Mediation There are a number of benefits to me­

diation. I t can be confidential, i f the parties

desire. While the mediator w i l l commit to treat the matters discussed as confi­dential, the parties may or may not care about confidentiality. As provided by the law of most states (including Colorado, Idaho, Illinois, Montana, Oklahoma, Ohio, Pennsylvania, South Dakota, Texas, Utah and Wyoming), except in very limited circumstances, a mediator cannot be com­pelled to testify in court about the medi­ation proceedings.

Wi th the help of a mediator, parties can craft their own solution, whereas a judge is limited in how he can decide a case. The judge can order the payment of money. However, maybe a better solu­tion would be paving a lessor's driveway or relocating a pipeline to a mutually ac­ceptable location, or providing another service or item that would provide con­siderable value to one party and minimal expense to the other.

Reaching a settlement eliminates the risk associated with litigation. Each party w i l l have to compromise to reach a set­tlement, which means that it w i l l not get all that it wants. However, there won't be a verdict against a party. Many times when parties review a judge's decision, at least one of them w i l l feel the judge did not understand its position.

An example is found in Hupp v. Beck Energy Corporation, in which an Ohio Common Pleas Court ruled that a lease that provided for delay rental payments constituted a lease in perpetuity, and was void and unenforceable. This decision may be appealed, but it illustrates the risk of not settling.

The parties to mediation can determine the time and location of the sessions, and can select the mediator.

While one may have to wait months or more for a trial date, mediation can be scheduled whenever and wherever the parties and the mediator agree. Litigation

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can continue for a decade or more. The Texas case of Coastal Oil & Gas

Corp. v. Garza Energy Trust et al began with a 1978 action over the ownership interests in real property. After those issues were resolved in 1982, certain owners sued in 1988 and then 1995. Those cases were resolved in 1999. Mean­while, in March 1997, the trust sued Coastal for breach of implied covenants to develop and to prevent drainage. The case proceeded through the trial court, the court of appeals, and the Texas Supreme Court. In an August 2008 deci­sion, after three decades of litigation, the Texas Supreme Court concluded that Coastal was entitled to a new trial.

Parties tend to be more satisfied with their attorneys and the legal system, and may be wi l l ing to comply with an agree­ment i f they participated in developing the agreement's terms. Unlike court pro­ceedings, in mediation, the parties, as well as their attorneys, participate and have an opportunity to see, talk and listen to the other parties in a controlled setting.

Mediation does not require the expenses associated with expert witnesses or ac­quiring evidence. Again, the goal is to reach a settlement, not determine the legal validity of a position. The parties can go home knowing that the matter is concluded. They don't have to wait months for a de­cision and then subsequent appeals.

Even i f the mediation session does not result in resolution, it gives each party an opportunity to open-or to re-open-dialogue between the parties and an opportunity to hear firsthand the views of the other party. This can then lead to a more amicable long-term relationship. Also, the parties w i l l have a greater un­derstanding of the issues and the positions

DAVID M. COHEN

David M. Cohen provides mediation services as Cohen Dispute Resolution Services LLC. He is a former in-house attorney for American Electric Power, where he specialized in mine red, con­tract, business and transportation law. Cohen received his B.S.B.A. from Ohio State University and his juris doctorate from the Moritz College of Law at Ohio State University.

of all involved, which often provides the basis for a later settlement.

Selecting A Med ia to r

As mentioned earlier, the parties select the mediator. There are no licensing re­quirements for being a mediator. A mi­nority of states have certification programs for mediators, meaning that the mediator so certified may represent that he has state certification. However, a certification is not required in order for a person to represent himself as a mediator. Also, many courts have requirements that must be met by a mediator in order for him to mediate cases referred by those courts.

Mediators can be found and their cre­dentials reviewed at state mediation as­sociation websites, at state bar association websites, or at mediate.com. There are mediation associations in many states, including Colorado (Mediation Association of Colorado, coloradomecliation.org), Ohio (Ohio Mediation Association, me-diateohio.org), New York (New York State Dispute Resolution Association, nysdra.org), Pennsylvania (Pennsylvania Council of Ivlediators, pamediation.org), and Texas (Texas Association of Mediators, txme-

diator.org), where member profiles may be reviewed.

Many mediators have pages on Linkedln and their own websites, where one can learn more about them.

Different mediators have different ap­proaches. It is important to talk with a prospective mediator to determine that he wi l l be doing what the client is expecting. Some mediators wi l l work to facilitate dis­cussions, but do not believe it is appropriate for them to voice their opinions. Other mediators believe it is important for them to express their views, generally in private. Still others-often former judges-believe the parties want their opinions on how a case wi l l be decided.

Since the mediator does not decide the winner of a dispute, subject matter expertise may not be important. The parties have the opportunity to educate the mediator. In most cases, it is more important that the mediator is proficient in working with parties to resolve disputes than in having subject matter expertise.

Remember, i f a case isn't resolved, the alternative is for it to be presented before a judge, who may not have subject matter expertise, but w i l l decide who wins. •

Associations Work To Prevent Sage Grouse USFWS Listings

WASHINGTON-The U.S. Fish and Wildl ife Service released a notice in Jan­uary that said it would formally consider listing the Gunnison sage grouse as an endangered species, according to published reports. The agency has until Sept. 30 to make a final determination on the listing.

According to oil and gas industry as­sociations, i f the agency decides to list the sage grouse under the Endangered Species Act, it would have major impl i ­cations on oil and gas development in western Colorado and eastern Utah.

The bird's populations occupy 1,511 square miles across the two states, with the largest population in Gunnison County, Co., according to the USFWS. The agency also is proposing 1.7 mil l ion acres of critical habitat for the species' conservation because it says habitat loss and fragmen­tation from roads and power lines continue to threaten sage grouse populations.

Spencer Kimbal l , manager of govern­ment affairs for the Western Energy A l ­liance, says state, regional, and national industry associations are encouraging USFWS to recognize all the actions oil and gas companies perform to protect and preserve the species and its habitat,

such as uti l izing best management prac­tices and mitigation projects.

"Oi l and gas companies are constantly taking steps to conserve the species and its habitat in areas where they operate," Kimbal l states. "While we certainly sup­port reasonable protection measures for species, those measures must balance sage grouse protection with economic development."

He adds the associations also have been dialoguing with other trade groups, such as agricultural, ranching and sports­men organizations.

In January, Barry Russell, president of the Independent Petroleum Association of America, submitted a letter to The Salt Lake Tribune on the potential Gun­nison sage grouse listing, saying it would "devalue state and local efforts to conserve the species while simultaneously under­mining Utah's energy goals."

Halting energy development because of a listing, the letter continues, would be a "devastating, job-crushing, unintended consequence. But Utah does not have to choose between wildl i fe and energy." In ­stead, energy producers could work with state and federal aaencies to ensure the

146 THE AMERICAN OIL & GAS REPORTER