This Article argues that the Commission's legitimate interest in enforcing its oil and gas regulations, especially including well-plugging regulations, does not justify absolute imputation of regulatory liability to third-party operators under Kan. Stat. Ann. § 55-155(c)(4). But, under certain circumstances, the state's interest may justify imputing personal liability on the individual constituents of a license applicant where the individual is culpable for the underlying regulatory violation or the applicant has a business connection with the operator primarily responsible for the violation, and the competing public policies of groundwater protection and limited liability justify the imputation. This Article proposes a procedural and substantive standard for the Commission to follow in adjudicating operator licenses under Kan. Stat. Ann. § 55-155(c)(4) that balances the need for enforcement with the individual rights of license applicants and their corporate constituents. Section II of this Article surveys the state's interest in ensuring the responsible plugging of oil, gas, and water injection (or disposal) wells, and outlines the existing statutory and regulatory well-plugging scheme. Section II concludes with a discussion of Agricultural Energy Services. Section III discusses the legal constraints on the state's power to enforce these statutes and regulations by imputing liability for abandoned wells on third-party applicants for new and renewal operator licenses. This Section first outlines the constraints imposed by corporate law and the principle of limited liability for owners, directors, officers, and other agents of business organizations. Section III next analyzes the restrictions on the Commission's power imposed by the Fourteenth Amendment's procedural and substantive due process guarantees. Section III concludes with a relatively brief survey of the administrative law principles governing the Commission's actions in denying license applications under the statute. Section IV synthesizes the state's legitimate interest and the constraints on its power set forth in the preceding Sections, and proposes an eight factor test for the Commission to apply in future licensing proceedings. This test would permit the Commission to deny a license under Kan. Stat. Ann. § 55-155(c)(4) due to an applicant's constituents' association with other operators if it finds either some culpability on the part of an individual constituent or a business association between the applicant and the operator primarily responsible for the underlying violation. It further calls on the Commission to balance the competing public policies at stake in these license proceedings by considering the severity of the underlying violation and its proportionality to the effects on the applicant of ignoring its corporate form and denying the license. A balancing test (or a similar factors test) best protects the state's strong interest in preserving the public and environment from the negative externalities of oil and gas activities, including the pollution hazard posed by unplugged wells, without sacrificing the deeply ingrained principles of limited liability and due process.
Washburn Law Journal
Joseph A. Schremmer & Charles C. Steincamp,
Imputing Regulatory Failures in Oil and Gas Licensing: A Discussion and Proposal,
Washburn Law Journal
Available at: https://digitalrepository.unm.edu/law_facultyscholarship/719