On March 3, 2017, the United States Fifth Circuit Court of Appeals affirmed the district court’s ruling dismissing a lawsuit filed by the Southeastern Louisiana Flood Protection Authority against dozens of defendants in the oil and gas industry. The Fifth Circuit also affirmed that it had federal question jurisdiction over the lawsuit. (more…)
Legacy litigation refers to hundreds of lawsuits in Louisiana seeking damages allegedly related to environmental harm caused by oil and gas exploration and production activities. These lawsuits have been likened to winning the “landowner lottery,” as many landowner plaintiffs seek to recover damages vastly in excess of the value of their property. The Louisiana Legislature has struggled to bring meaningful reform that ensures property is remediated without providing windfall awards to property owners that will not be used to remediate property and that contribute to the negative impressions many have about Louisiana’s business climate. The Legislative efforts at reform continue, though. Senator Allain has recently introduced Senate Bill No. 79 of the 2015 Regular Session. (more…)
The Second Circuit Court of Appeal has upheld a “judicial ascertainment” clause in a 1971 mineral lease, B.A. Kelly Land Co., LLC v. Questar Exploration & Prod. Co., 2012 WL 5503665 (Nov. 14, 2012). The lessors filed suit in 2009 claiming that the lease automatically terminated because there was a failure to produce in 1988 and 1989. The lease, however, had a judicial ascertainment clause which essentially required a court to determine that a breach had occurred and an opportunity to cure the breach before the lease could be terminated. The Second Circuit enforced the judicial ascertainment clause, reasoning that the lease is the law between the parties and the judicial ascertainment clause did not violate any law or public policy. The Second Circuit then granted leave to plaintiffs to amend their petition to add a claim for judicial ascertainment. In light of the judicial ascertainment clause, if the court determines that the lessees did not comply with an obligation to produce in the 1980s, the lessees should then be afforded an opportunity to cure such default before the lease can be terminated.
In Aertker v. Placid Holding Co., 2012 WL 4472002 (M.D.La. Sept. 27, 2012), Placid Refining Company was found liable to a group of landowners for bad faith trespass for a pipeline installed in the early 1980s. Placid’s agent obtained a right-of-way agreement from the mineral lessee only, and not the landowners. At the time the right-of-way was granted, the assessor’s ownership map showed that the land was owned by the Aertker family, and was burdened by a ninety-nine year lease to Louisiana-Pacific Corp. The court concluded that Placid was a bad-faith trespasser who knew or reasonably should have known that it did not have the landowners’ permission. The court further concluded that the landowners have a cause of action for continuous trespass (and thus the claim did not prescribe). The court determined that Placid had earned $148,926,000 in profit during the relevant time period. The court then determined the percentage of the Placid assets that could be attributed to the right-of-way on an annual basis, and awarded the landowners $96,145.33 plus interest from the date of judicial demand.
It is a fundamental requirement of Mineral Code article 137 that a lessor who seeks unpaid royalties must provide written noticeto the lessee. Many leases contain similar contractual notice requirements. In Estes v. Placid Oil Co., 2012 WL 122729 *3 (W.D.La. April 10, 2012), the Court nonetheless permitted notice to an affiliate (OXY USA Inc.) of a lessee (Placid Oil Company) where both entities share a common parent company (Occidental Petroleum Corporation), and the affiliate’s representative was corporate counsel for both entities, had the same title, and responded to the notice on behalf of the lessee. The Court distinguished this scenario from the facts of Lucky v. Encana Oil & Gas, Inc., 46 So.3d (La. App. 2d Cir. 2008), in which notice was provided to a sublessee but not the lessee. Estes, 2012 WL 122729 at *3.
Effective August 1, 2012, Act Nos. 754 and 779 of the 2012 Regular Session of the Louisiana Legislature take effect, altering the procedure for Louisiana “legacy litigation.” Legacy litigation refers to hundreds of lawsuits in Louisiana seeking damages allegedly related to environmental harm caused by oil and gas exploration and production activities. Following is an overview of some of the key changes to the procedure for litigating legacy lawsuits. (more…)
In Adams v. BP America Prod. Co., 2012 WL 1038035 *4-5 (W.D.La. March 27, 2012), the Court held that a lessee’s refusal to pay royalties was reasonable where the lessor failed to provide certified records of transfer of ownership as required by the lease and because Mineral Code article 138.1 required the lessor to supply name, address, and tax identification information. Adams is consistent with a several other cases protecting lessees where they have timely responded to a notice of demand and where ownership was in question.
In Oracle 1031 Exchange, LLC v. Bourque, 85 So.3d 736 (La. App. 3d Cir. 2012), writ denied, 85 So.3d 1272 (La. 4/20/12), the Court of Appeal upheld a penalty of double the royalties owed and attorney’s fees. In this case, a concursus proceeding was instituted and royalties were deposited into the district court’s registry. This action, however, did not excuse the nonpayment of royalties. The parties responsible for payment had argued that they did not believe the minimal amount of oil produced, which they called “test oil,” triggered a need to pay royalties. Noting that another royalty owner had been paid on the minimal production, the Court of Appeal found the argument bordered on disingenuous. The Court of Appeal rejected arguments that the parties responsible for payment did not know who to pay and that there was no signed division order. Notably, the Court of Appeal also permitted the royalty owner to pursue not only the lessee but also non-lessee affiliated companies. The Court of Appeal relied upon an alter ego theory, noting in the factual background that required notices of nonpayment were provided to the lessee and the affiliates.