Deals in the Marcellus natural gas shale, which stretches from West Virginia to New York state, have been hotter than Houston in August. But all that dealmaking may grind to a halt as lawsuits pile up over companies' controversial use of the technology that's made them hot in the first place: hydraulic fracturing, or what's known in industry parlance as "fracking."

The technology, which blasts water, sand and chemicals into rock to get the gas flowing to the surface, has been blamed for years by environmentalists for polluted area water supplies, a connection the oil and gas industry has vigorously denied.

Now comes a lawsuit by 13 Pennsylvania families who claim their water supplies have been fouled due to gas drilling operations being conducted by Southwest Energy Production Co., a unit of Southwestern Energy Co. (NYSE:SWN). The families are asking the court to bar Southwest Energy from drilling and seek compensatory and punitive damages and the cost of future health monitoring.

The suit, which emerged last week, is not the first such legal action. Cabot Oil & Gas Corp. (NYSE:COG). has also been sued by Pennsylvania residents when problems with the cement casing on 20 of its wells caused contamination of local water wells, driving down property values and causing sickness. Levels of methane in some water wells were so high that homeowners were able to set water aflame as it came out of their taps.

And George Zimmerman, a landowner in Washington County, Pa., has sued Atlas Energy Inc. (NASDAQ:ATLS) for polluting his soil and water. Water tests at three locations near gas wells on Zimmerman's property -- one 1,500 feet from his home -- found seven potentially carcinogenic chemicals above "screening levels" set by federal regulators as warranting further investigation, including arsenic, benzene and naphthalene.

Pollution isn't limited to the Marcellus. Earlier this month, the Environmental Protection Agency warned some residents of Pavillion, Wyo., not to drink from private water wells after tests found hydrocarbons, methane and high sodium that may have come from fracking operations.

There have also been accidents eerily reminiscent of the BP plc (NYSE:BP) oil spill. In June, one of EOG Resources Inc.'s (NYSE:EOG) natural gas wells in western Pennsylvania spewed natural gas and drilling fluids 75 feet into the air, according to information released by the state's Department of Environmental Protection. EOG was ordered to halt all natural gas drilling across the 230,000 net acres it owns in Pennsylvania, where it had previously been seeking joint venture partners to help develop the region, and was fined $353,400. And later that month, a Chief Oil & Gas crew drilling a Marcellus well owned by AB Resources in West Virginia hit a pocket of methane from an inactive coal mine, which caused an explosion that set the rig on fire and sent seven workers to a burn center. The fire was still ablaze three days after the explosion.

There are plenty other places to "frack" where folks are more accustomed to the oil industry coming in, including Texas' Eagle Ford, which has been a particularly hot area for investment and dealmaking recently. But new federal regulations could put a crimp on the entire industry. It's already happening in some states. In Wyoming, for example, there are new rules requiring natural gas drillers to disclose the chemicals they use in hydraulic fracturing. While they're the toughest laws on the books so far, environmentalists are calling on Congress to pass legislation protecting all Americans' right to know about hazardous drilling compounds that could contaminate water supplies. (The industry is fighting back, claiming they're trade secrets.) If new regulations are ushered in, that could make the shale business not so hot after all, and leave buyers holding the bag.