Dallas to consider issuing $55M bond to settle dispute with gas drilling company

Protesters demonstrated during the city of Dallas’ official Luna Vista Golf Course re-opening in October 2012. This was near land where Trinity East Energy had once hoped to drill for natural gas.

Dallas could move this week to end a decade-long contract dispute by paying a gas drilling company at least $44.5 million, four years after a court directed the city to do so. Taxpayers’ final bill will likely be even more than the ordered amount because the city fought against paying the tab for so long.

The City Council is scheduled to vote Wednesday whether to approve up to $55 million in bond money to cover the total costs from a 2014 lawsuit filed by Fort Worth-based Trinity East Energy, LLC. A Dallas County jury in February 2020 agreed with Trinity East Energy that Dallas had improperly denied itspermits to drill on city-owned park land and nearby private land in 2013.

A county district court judge that same month ordered the city to pay $44.5 million — $33.6 million plus $10.9 million in interest from before the judgment. Since then, the city has owed another 5% per year in interest on the full amount awarded until the judgment is paid, court documents show. The city’s attempts to appeal the verdict up to the Texas Supreme Court have been unsuccessful, ending last month.

If the bond issue is approved Wednesday, it’s not immediately clear how long it will take the city to pay it off.

Attorneys representing Trinity East Energy declined comment Monday. The city didn’t immediately respond to questions Monday on how long it would take the city to pay off the bond if the council approves it’s issuance Wednesday, where this amount ranks in city legal payouts, and exactly how much the city currently owes Trinity East Energy.

“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,” said Catherine Cuellar, the city’s spokeswoman. “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.”

Trinity East Energy said in court documents that it was among the companies solicited by Dallas to bid on gas leases on city land as a way to help plug a projected $90 million city budget shortfall in 2007. It said that included Dallas seeking to lease minerals under city-owned property to businesses to develop the natural gas under the surface.

“In the gas lease, the city expressly conveyed its property interest in its minerals to Trinity and listed at least two available drill sites acceptable to Trinity,” the company said in a July 2023 brief to the Texas Supreme Court. “The city subsequently denied Trinity’s (specific use permit) applications to drill due solely to political opposition and then refused to refund the bonus payment to Trinity.”

According to Trinity East Energy, the company paid the city $19 million in 2008 to lease more than 3,500 acres of land in northwest Dallas near the Luna Vista Golf Course and the Elm Fork gun range. The company said it spent millions of dollars more on planning and were assured by then-City Manager Mary Suhm in a letter that it would be allowed to drill.

But city staff also briefed the City Council in 2008 saying there would be no drilling on park land. The city’s drilling ordinance at the time banned it.

The proposal drew protests and in August 2013, the Dallas City Council denied Trinity East Energy’s three applications to drill saying the proposed locations were inappropriate. Two of the sites were located in a city park and in a floodplain, and a third location was near a city soccer complex. The applications were also denied by the City Plan Commission.

The City Council later in 2013 approved a new ordinance requiring gas drilling happen at least 1,500 feet away from homes, businesses, churches and other protected uses. The spacing requirement had previously been 300 feet.

Trinity East Energy said the new city regulations negated any chance of finding a drill site on the leased properties and was essentially a ban on drilling in Dallas.

“Trinity spent over $30 million in reliance upon the city’s promises and lost hundreds of millions more in lost profits,” the company said in its 2014 initial lawsuit.

In court documents, city attorneys denied that Dallas breached its contract with the gas drilling company, engaged in any misrepresentation and any other alleged wrongdoing. The city argued Trinity East Energy took a risk signing a lease without first getting city-approved permits to drill.

“The leases did not obligate the city to provide plaintiff with drill site locations,” the city said in a March 2014 response to the original complaint. “To the contrary, the leases were amended so as to expressly provide that a specific use permit is required before the land can be used for oil and gas drilling…and that ‘lessee understands that the proposed drill sites’ are on park land and/or within the floodplain where drilling is not permitted unless authorized by the City Council.”

A Dallas County jury and judge sided with Trinity East Energy.

“After reviewing the pleadings and hearing the evidence at the trial of this matter, the court concludes…the city engaged in a regulatory taking (inverse condemnation) of Trinity’s property by failing to approve one or more of the specific use permit applications sought by Trinity,” then-district court judge Craig Smith wrote in his February 2020 judgment. “The court further finds and concludes that the city is liable to Trinity for the difference in value to Trinity’s property caused by the regulatory taking that occurred on August 28, 2013.”

According to court documents, the city was denied its motion for a new trial in April 2020 and then challenged the ruling with the Texas Court of Appeals for the Fifth District. That appeals court ruled in favor of Trinity East in August 2022, leading to the city petitioning the Texas Supreme Court to review the case in November 2022.

“The takings clause is intended to protect individual property owners from bearing public burdens that, in all fairness and justice, should be borne by the public as a whole,” the city wrote in an August 2023 brief to the state Supreme Court. “Trinity has flipped this purpose on its head, invoking the takings clause as a shield from investment risks under an oil-and-gas lease that, in all fairness and justice, should be borne by Trinity.”

The state Supreme Court rejected the city’s petition for review in September 2023 and also declined another city motion for a rehearing of its petition to review the case on Dec. 29.

“It is further ordered that petitioner, city of Dallas, Texas, pay all costs incurred on this petition,” wrote Blake Hawthorne, a state Supreme Court clerk, in the notice.

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