Grady S. Hurley on McNeill, et al v. Burlington Resource Oil and Gas Co., 153 P. 3d 46, 2007 (N.M. App. Dec. 4, 2006)
Where a surface estate or property has been negligently damaged, generally, the property should be restored and the owner compensated for the loss. However, the value of damages should not exceed the property’s value. Thus, the damages test is fact specific and not subject to a bright line rule. Grady S. Hurley discusses McNeill v. Burlington Resource Oil and Gas, in which the highest court of New Mexico clarified its own rule of law in determining the diminution in property value under varying circumstances. He writes:
Recently, the New Mexico Supreme Court revisited and refined the law on property damages recoverable by owners of surface rights against mineral lessees due to their negligent acts. In doing so, the Court clarified its decision in Amoco Production Co. v. Carter Farms Co., 703 P 2d 894 (1985) and held that the proper measure of property damage in a negligence claim against a mineral lessee no longer focuses on whether the property damage is characterized as “permanent” or “temporary.” In certain circumstances, the cost to repair damage to the surface estate damaged by a mineral lessee’s negligence may be relevant in determining the diminution in value of the affected property.
. . . .
The McNeill interests are cattle ranchers who owned 31,000 acres of surface rights. Burlington had acquired a mineral lease over a portion of the ranch to explore for oil. As was industry standard, a pit was dug to contain the waste by products from the exploration and production. Production ceased in 1986 and in 1992, the pit was buried. In 1996, McNeill asked for the contaminated pit materials to be removed. Suit was filed alleging negligence, trespass, and private nuisance. It was also alleged that the underground water supply was contaminated.
. . . .
The Supreme Court in McNeill recognized that in Carter it attempted to offer a framework for measuring damages sustained to a surface estate by distinguishing between permanent and temporary damages. By exploring the meaning of “relevancy,” the McNeill court held that the cost of repair may be relevant in both determining permanency by a jury and in analyzing the diminution in value of real property. The relevancy of introducing evidence of the cost to repair however, must be decided on a case by case basis. In McNeill, evidence of repair cost was relevant because the surface owners alleged that the value of their land was diminished by the cost of repairing the damage that resulted from the mineral lessee’s negligence. The bright line permanent/temporary damage dichotomy in Carter was held to be too rigid and “a disservice to the parties.” A new flexible rule was fashioned as such:
. . . In accessing damages, the jury may consider the cost to repair or the diminution in value, without regard to whether the injury was permanent or temporary. The cornerstone of the inquiry will be reasonableness. The jury shall consider the ‘nature and extent of the injury and, in turn, the reasonableness of awarding the cost of repair versus diminution in value’ . . . . The proper measure of damages will ‘depend no the proof offered to establish and quantify the harm’ . . . . In either case the cap on damages will be the diminution in value of the property.
Subscribers to www.Lexis.com may purchase this entire expert commentary here.