Schneberger v. Apache Corp.
890 P.2d 847 (1994)
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Rule of Law:
When a contract to perform remedial work on land is breached, and the cost of performance is grossly disproportionate to the resulting diminution in the property's value, damages are limited to the diminution in value.
Facts:
- Apache Corporation (Apache) conducted oil and gas drilling operations on property owned by Fred and Zola Schneberger, which polluted the land and groundwater.
- The Schnebergers and Apache entered into a settlement agreement in 1986 to resolve a prior lawsuit over the pollution.
- Under the agreement, Apache paid the Schnebergers for past damages and promised to perform remedial work to reduce water contaminants to a specified level.
- The agreement also stipulated that the parties would be subject to the cleanup requirements of the Oklahoma Corporation Commission.
- Apache failed to reduce the water contaminants to the levels required by the settlement agreement.
- The estimated cost to complete the remediation as specified in the agreement is $1.3 million.
- The estimated diminution in the market value of the Schneberger property due to the non-performance is $5,175.
Procedural Posture:
- In 1984, Fred and Zola Schneberger sued Apache Corporation in the U.S. District Court for the Western District of Oklahoma for pollution damages.
- In 1986, the parties settled that action with a formal agreement, and the case was dismissed with prejudice.
- In 1989, the Schnebergers filed a new complaint in the same federal district court, alleging Apache had breached the 1986 settlement agreement.
- The U.S. District Court certified two questions of law to the Supreme Court of Oklahoma regarding the proper measure of damages under state law.
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Issue:
Is the measure of damages for breach of a settlement agreement to remediate polluted land limited to the diminution in the property's value when the cost of remediation is grossly disproportionate to that value?
Opinions:
Majority - Lavender, V.C.J.
Yes. The measure of damages for breach of a settlement agreement to remediate polluted land is limited to the diminution in the property's value when the cost of remediation is grossly disproportionate to that value. The court reaffirmed its precedent set in Peevyhouse v. Garland Coal & Mining Co., which held that where a contract provision is incidental to the main purpose and the economic benefit of performance is grossly disproportionate to the cost, damages are limited to the diminution in value. This rule is grounded in Oklahoma statutes requiring damages to be reasonable and not 'unconscionable and grossly oppressive.' The court rejected the argument that newer environmental statutes, like the Surface Damage Act, have implicitly overruled Peevyhouse, noting that even under those acts, diminution in value remains the standard measure of damages for permanent injury to land. The court also explicitly dismissed federal court decisions that had predicted Oklahoma would abandon the Peevyhouse rule, emphasizing that those courts misinterpreted Oklahoma law and that the principle of avoiding economic waste remains controlling.
Analysis:
This decision solidifies the controversial 'economic waste' doctrine from Peevyhouse as the controlling rule in Oklahoma for breaches of contracts involving land remediation. By reaffirming this precedent, the court signals that established common law principles of contract damages will not be easily displaced by general public policy arguments about environmental protection. The ruling significantly impacts landowners by capping their potential recovery in private contract disputes over pollution, making it difficult to fund a full cleanup if the property's market value is low compared to the cost of remediation. It reinforces that state courts are the final arbiters of state law, even when federal courts have interpreted that law differently.
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