The Dallas City Council is scheduled to decide Wednesday whether to pay out up to $55 million from the upcoming 2024 bond package to settle a lawsuit filed by a natural-gas drilling company.
The settlement comes after nearly a decade of litigation over over whether the city illegally reneged on a development deal.
The Trinity East, LLC drilling company alleges in its 2014 lawsuit against the city of Dallas, that after entering a lease with Dallas for drilling on city-owned land, city officials backed out of issuing specialty permits Trinity needed to operate.
The company said it had reasonable assurances from Dallas city staff — and the then-City Manager — that it would be granted access to the land for drilling. The lawsuit claims that if Trinity hadn’t, it wouldn’t have applied for the city’s solicitation at all.
In 2020 a Dallas County judge ordered the city to pay over $33 million in damages to Trinity plus an interest rate of nearly $11 million.
But the court also ordered the city to pay an interest rate of 5% annually until the damages are paid in full to Trinity.
Now the city is looking at up to $55 million — which the council could pay out of the upcoming 2024 bond issuance. That’s along with funding for street infrastructure, housing and parks.
“While the city is disappointed with the outcome of the lawsuit, all available legal avenues for appeal of the judgment have been exhausted, and the city must now address its legal obligation to pay the judgment,” Communications, Outreach and Marketing Director Catherine Cuellar said in a statement to KERA.
“Cities may choose to pay large judgments from current operating funds or by issuing debt which spreads the cost over time. Due to the size of this judgment, the city will issue bonds.”
KERA reached out to the law firm and lead attorney representing Trinity to speak about the issue. The firm declined to comment.
Jim Schermbeck is the director of Downwinders at Risk — a 30-year-old environmental advocacy group. The group was part of the push to oppose the Trinity operation — and other drilling facilities in the area. Downwinders also pushed for the current, strictly regulated, city drilling ordinance.
“This is all completely self-inflicted by the City of Dallas for going around the public and doing this behind closed doors without anyone knowing about it,” Schermbeck told KERA. “Including the council.”
‘Reasonably confident’
A 2014 lawsuit filed by Trinity against the city of Dallas, claims that in 2008 — to fix a $90 million-dollar budgetary gap — officials started soliciting city-owned land for possible oil and gas drilling operations.
The lawsuit alleges that prior to the solicitation, it also passed an ordinance requiring operators to obtain Special Use Permits (SUP) before setting up shop — and “removing a prohibition against drilling on park land.”
Trinity alleges it took advantage of the city’s new interest in a possible operation — applying for several of the bid packages and spending millions on the application process.
After negotiations, the gas company paid out over $19 million to the city for leases on two tracts of land — one of which was the proposed drilling site.
During that process, Trinity sent a letter to then City Manager Mary Suhm saying that while city staff “couldn’t make any guarantees,” they said they were “reasonably confident” that city commissions and the council would approve Trinity’s request to drill on the newly leased land.
“We understand that this letter is not a binding agreement, but is merely a good faith representation of our discussions in connection with this transaction. If this correctly sets forth your understanding of our discussions in connection with entering into the…Lease, please so indicate by your signature below,” the letter from Trinity executive Stephen Fort said.
Suhm signed the letter.
But the approval never came. Both the city’s Plan Commission and the city council rejected the company’s application to drill on the leased land.
The lawsuit claims that if city staff — and the city manager — had not indicated Trinity would be granted the correct permits for its drilling operation, it would have never sought the city’s bid or entered into the lease agreement in the first place.
“I guess the simple analogy would be if the city sold some farm land to a farmer and then denied him a right to farm on it, that just wouldn’t be right,” Fort told KERA news in 2014.
Then-Dallas Mayor Mike Rawlings said in 2014 he believed Trinity was never going to drill on the land and claimed that due to a drop in natural gas prices, it was more lucrative for the company to sue the city. Rawlings said the whole situation felt like “a game of poker was being played.”
“And the only way they could win is if we folded our hand,” Rawlings told KERA in 2014.
But after a decade of legal fights — it’s the city who ultimately is folding now.
Now the city will pay up to $55 million for the settlement — and use “a future bond issuance” and possibly liability reserve funds to pay for it.
What’s next
The conflict Trinity came at a time when natural gas and oil drilling had hit a peak in the Dallas Fort-Worth area. That’s thanks to the Barnett Shale, one of the largest onshore natural gas fields in the United States. The area covers 5,000 square miles — including the city of Dallas.
“It’s difficult to accurately portray that time. It was a mania, it was kind of a gold-rush mentality,” Schermbeck said. “Cities were tripping all over themselves to say yes to drilling.”
Now that has died down thanks to restrictive ordinances that largely limit drilling operations in Dallas. But Schermbeck still says deal that put the city through a decade of legal troubles, is why some advocates are so weary of Dallas city hall.
“That’s what’s so concerning for us,” Schermbeck said. “We do not trust the Dallas City Attorney’s Office to work on behalf of the residents' self-interest, based on the history of these kinds of things happening in the past.”
KERA reached out to the city to see what other funding options — other than issuing bonds — for the settlement were discussed, why the lawsuit took so long to settle and whether Dallas voters would be able to weigh in on the millions in legal fees.
KERA also asked if Trinity is still leasing the two tracts of land from the city and whether there was a way the company could reapply for the correct permits — and begin their operation.
A city spokesperson gave a general statement but said more detailed answers “will depend on Wednesday’s discussion of this agenda item and may require an [Open Records Request].”
The firm representing Trinity also declined to comment about their clients’ future plans.
The settlement is slated for Wednesday’s consent agenda — a portion of council meetings that rarely gets much discussion. The council will decide whether to approve the settlement — and use bond dollars to pay for it.
Got a tip? Email Nathan Collins at ncollins@kera.org. You can follow Nathan on Twitter @nathannotforyou.
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