LOUISIANA LEGAL UPDATE

By Andrea Knouse

Mayhall & Blaise

The Louisiana Court of Appeal for the Second Circuit recently decided Cason v Chesapeake Operating, Inc.,  47,084, 2012 WL 1192404 (La. App. 2 Cir. 4/11/12), In said case, the Court discussed what constitutes “engaged in operations for drilling” on a lease premises so as to continue the lease beyond its primary term as well as interpreted the “adjacent land clause” found in numerous oil, gas and mineral leases.

Plaintiffs, Edgar and Flora Cason, appealed a Judgment from the District Court granting Defendants, Empress Louisiana Properties, et al, a preliminary injunction prohibiting Plaintiffs from interfering with the construction of a pipeline on Plaintiffs’ leased property.

Plaintiffs executed an oil, gas and mineral lease on about 7,200 acres of land in favor of Pride Oil & Gas which, with exercised extensions, would terminate on May 31, 2010. Also included in said lease was a clause which stated that the lease would remain in existence as long as the lessee is “engaged in operations for drilling”, another allowing ingress and egress to the lease tract on “adjacent lands” to construct necessary roads and pipelines, and the right to assign the lease in whole or in part. Through various assignments, Chesapeake, parent company of Empress, acquired said lease.  Plaintiffs argue that Defendants failed to engage in activities that would maintain the lease beyond May 31, 2010, as no drilling permit was obtained from the Office of Conservation and, thus, executed an oil, gas and mineral lease in favor of Goodrich.  However, on May 28, 2010, Defendants entered the lease tract, on May 29 and 30, Defendants entered onto the tract to cut trees and stack lumber. The well was not spud until July 22, 2010. Plaintiffs alleged to the District Court that the minor work performed between May 29-30 did not constitute “operations for drilling” which would maintain the lease beyond its primary term and refused to allow Defendants to lay pipeline on an adjacent tract  owned by Plaintiffs.

During the trial at the District Court level, Defendants offered testimony from various witnesses relative to its operations and activities on the leased premises. A senior landman testified that while Defendants did not obtain a drilling permit during the primary term of the lease, they did complete surveys that were vital to drilling within the primary term. A corporate representative for Defendants testified that Defendants hired a surveying company on April 26, 2010, surveyors were on the ground May 4-7 tying off corners, and were staking the pad May 26-28. A manager of gas sales for Defendants testified that he started researching production issues on May 10, and the only feasible option was to run the gas through a tract of Plaintiffs’ land adjacent to the leased premises. The District Court gave the most weight to the testimony of an expert oil and gas attorney, Philip N. Asprodites. Mr. Asprodites reviewed all of the Defendants’ activities prior to May 31, 2010, and concluded while it was not “standard practice” to engage so many activities-putting surveyors on the ground, staking the well and cutting trees to lay the road-and not obtain a drilling permit until 45 days after the end of the primary term, Defendants nonetheless “commenced drilling operations.” He further testified that it did not matter that the drilling permit was not obtained during the primary term, stressing that the lease tract posed special difficulties requiring extensive preparatory work. We note that the Judgment of the Second Circuit does not elaborate as to what may be the “special difficulties” relating the leased premises.

The District Court determined that Defendants were engaged in good faith drilling operations prior to the end of the primary term and granted a preliminary injunction against Plaintiffs. Plaintiffs appealed alleging, among other claims, Defendants failed to make a prima facia case for maintaining the lease beyond the primary term.

Engaging in Operations

Plaintiffs allege that Defendants failed to apply for a drilling permit during the primary term, surveryors failed to complete drilling surveys, no equipment was moved onsite, and no pits were dug in connection with the drilling of a well. Moreover, Plaintiffs contend that no Louisiana case has ever maintained a lease on such minimal conduct of the lessee. Defendants counter that courts have held preliminary acts began in good faith constitute commencement of drilling operations under the “engaged in operations” clause.

The Court states that the crucial question is whether Defendants’ activities on the leased premises amount to “engaged in operations for drilling” and cite Allen v Continental Oil Co.

The general rule seems to be that actual drilling is unnecessary, but that the location of wells, hauling lumber on the premises, erection of derricks, providing a water supply, moving machinery on the premises and similar acts preliminary to the beginning of the actual work of drilling, when performed with the bona fide intention to proceed thereafter with diligence toward the completion of the well, constitute a commencement or beginning of a well or drilling operations within the meaning of this clause of the lease.

If the lessee has performed such preliminary acts within the time limit, and has thereafter actually proceeded with the drilling to completion of a well, the intent with which he did the preliminary acts [is] unquestionable, and the court may rule as a matter of law that the well was commenced within the time specified by the lease.

255 So.2d at 845, quoting 2 Summers Oil & Gas, § 349, pp. 459–465.

The Court further held that where the lease provides for commencement of operations, the courts will hold that operations preliminary to the actual drilling of the well are sufficient compliance with the terms of the lease, provided, however, that such preliminary operations are continued in good faith, without undue delay, and with due diligence and dispatch, and thereafter the well is begun and completed.

Applying the above principals, the Court determined that although Defendants failed to obtain a drilling permit within the primary term, they performed sufficient preliminary acts by surveyors tying off section corners and gathering topographic data, finishing the survey and staking the site and access road, and logging the site. The Court placed much weight on Mr. Asprodites’ testimony that because of the “special difficulties” of the tract, extensive prep work was necessary, and the acts of the Defendants constitute “commenced operations.” Additionally, the Court states that Defendants spent $8.5 million to bring the well into operation, which shows that the preliminary actions were done for the purpose of completing the well. Thus, the lease was maintained.

Adjacent Land Clause

Plaintiffs also alleged that the preliminary injunction preventing Plaintiffs from interfering with pipeline installation was improper, as Defendants, assignees of the original lease, had no right to the land adjacent to the lease tract in Section 13. Plaintiffs contended that Defendants’ assignment was limited to the leased tract which covered lands located in Section 24.

The Court maintains that the original lease in favor of Pride Oil & Gas Properties expressly granted the lessee the right to conduct operations on adjacent or adjoining lands deemed necessary by the lessee to produce and transport oil, gas and other substances. While the partial assignment of the original lease to the Defendants may have been limited to Section 24 lands, the Court held that partial assignments do not divide a mineral lease under R.S. 31:310; therefore, the partial assignment did not sever the adjacent land clause contained in the original lease from the assignment.  The Court held that Defendants had to right to lay pipeline through the adjacent land in Section 13.

ANDREA M. KNOUSE is an attorney with Mayhall & Blaize, LLC. Her practice consists of title examination, division order work, and litigation. Ms. Knouse joined Mayhall & Blaize in 2009 after graduating cum laude from the Paul M. Hebert Law Center at Louisiana State University. While in law school, Ms. Knouse was named to the Chancellor’s List five times and received the CALI Award twice for earning the highest grade in Tax Policy and Taxation of Capital Gains. Ms. Knouse graduated magna cum laude from Texas Christian University with a Bachelor of Science degree in Psychology.

A Bayou Legal Brawl
Jindal says he'll sign bills limiting legacy drilling lawsuits.
WSJ Review & Outlook, June 7, 2012, 7:25 p.m. ET

Louisiana has had its fair share of oil troubles, from the Deepwater Horizon spill to federal foot-dragging on offshore permits. So congratulations to the state's political class for belatedly moving to plug the other drain on its oil resources: trial lawyers.

The Louisiana legislature last week sent Governor Bobby Jindal a pair of bills to end the legal racket known as "legacy lawsuits." For a decade, this booming litigation has cost the state thousands of jobs and billions in foregone investment.

In a legacy suit, trial lawyers scour property records and then sue on behalf of landowners, claiming billions in environmental damage from prior drilling. Any piece of land may have been leased over decades to many different drilling operators, so the suits seek to hold all predecessor companies liable. Over half the oil produced in Louisiana is now pumped by companies that have been hit with a legacy suit.

This legal boom began in 2003 when the Louisiana Supreme Court validated these suits and held that damage awards needn't be tethered to the land's value. Suits surged, and a study for the state legislature this year counted 271 current legacy lawsuits-more than half filed by one Louisiana law firm, Talbot, Carmouche & Marcello.

Louisiana didn't pass comprehensive drilling regulations until 1986, so some sites could use cleaning up. Yet the majority of these suits are frivolous, with the legislature study noting that more than three-fourths provided no evidence of environmental damage. This hasn't stopped the plaintiffs bar from alleging hundreds of millions worth of damage per suit to induce quick settlements. The lawyers take their cut, while landowners who get the rest are not obliged to use the payouts for environmental remediation.

Louisiana State University's Center for Energy Studies reported in February that Louisiana's onshore drilling industry has been stagnating, even as other oil-producing states grow briskly. The study estimated legacy lawsuits over the past eight years have discouraged the industry from drilling 1,200 new wells, losing $6.7 billion in drilling investment, $10.5 billion in economic output, and more than 30,000 job opportunities.

A 2006 reform contained too many loopholes and didn't stem the litigation. Governor Jindal has championed reform in many areas but was largely AWOL this spring as the state legislature debated reform. Only after Mr. Jindal was criticized by Louisiana Senator David Vitter did he emerge to broker legislation.

The resulting laws put the focus on clean-up over litigation. The bills require landowners to engage first with the state's Department of Natural Resources, which will evaluate environmental damage-if any. Plaintiffs firms can still sue, though the incentive to do so will be greatly diminished, given that the agency is unlikely to find evidence justifying big payouts. The new procedure will also cover existing suits, save the few that already have a trial date.

A spokesman for the Governor told us on Thursday that Mr. Jindal will sign the bills, which is great news for the Pelican State. There are few happy endings when fighting the trial bar, but this one will help Louisiana and U.S. energy production.

From: The AAPL Public Lands Committee

The Federal Register notice for the proposed Bureau of Land Management (BLM) hydraulic fracturing rule was formally published May 10, 2012. There is a 60 day comment period and comments are due by July 10, 2012.

The BLM is proposing a rule to regulate hydraulic fracturing on public land and Indian land. The rule would require disclosure to the public of chemicals used in hydraulic fracturing on public land and Indian land, strengthen regulations related to well-bore integrity, and address issues related to flowback water. The BLM believes that this rule is necessary to provide useful information to the public and to assure that hydraulic fracturing is conducted in a way that adequately protects the environment.

If you disagree with the attached BLM proposed rules, you have until July 10, 2012 to make comment. Please review the attached and send your comments to:

U.S. Department of the Interior

Director (630)

Bureau of Land Management

Mail Stop 2134 LM

1849 C St. NW.

Washington, DC 20240

This is the time to make your voice heard!

Richard A. Champion, CPL

Chair, Public Lands Committee

 Please click on the attached link below to view the Federal Register notice

Links:

LOUISIANA LEGAL UPDATE

By Kate Bailey Labue

Randazzo Giglio & Bailey LLC

There are two pending litigation proceedings examining severance of mineral rights from the sovereign. Specifically, courts are being asked to determine whether mineral rights were reserved to the State of Louisiana (the "State") under La. Const. 1921, Article IV, §2, on lands patented after 1921, pursuant to lieu warrants granted by the State prior to 1921.

This article will explain the (a) the policies of the State after the adoption of the 1921 constitution with regard to claims of mineral rights; (b) recent precedent challenging that policy with regard to patents granted post-1921 pursuant to pre-1921 lieu warrants; and (c) research that should be conducted to determine ownership of mineral rights.

The Louisiana State Land Office (“SLO”) was created in 1844 to sell State-owned lands and maintain the records of said sales. The records provide the evidence of State ownership that is used to develop revenues from surface leasing and permitting for the SLO and the Department of Natural Resources.

In 1921, Louisiana adopted a new constitution, which contained a mandate that all sales of property by the State contain a reservation of minerals in favor of the State; specifically, LSA-Const.1921. Art. 4, §2 (Now LSA-Const. Art. 9, §4(1974)), provides:

In all cases the mineral rights on any and all property sold by the State shall be reserved, except where the owner or other person having the right to redeem may buy or redeem property sold or adjudicated to the State for taxes.

The State’s policy is thus to claim mineral rights under all patents granted after 1921, even in the absence of an express reservation, except as to lands adjudicated to the state for non-payment of taxes (see Louisiana Attorney Opinion 08-0212 (1/23/09), citing Lewis v. State of Louisiana, 156 So.2d 431, 244 La. 1039 (1963)(holding “Article IV, Section 2 of the Constitution of 1921 is clearly applicable to . . . all sales of land whereby the state divests itself of title, with one exception; the redemption of property adjudicated to the state for taxes.”)

Recent precedent is challenging that policy with regard to instances whereby a patent was granted post- 1921 pursuant to an “in lieu” warrant granted pre- 1921. By way of background, there were instances where the State had sold and patented the same land twice or attempted to patent land previously conveyed by the United States or claimed under a foreign land grant. To resolve the conflicting claims, the State authorized the SLO to cancel the erroneous patents and issue “lieu warrants”, which were assignable; specifically, Act 104 of 1888, Section 3 (“Act 104”) sanctioned the following:

To authorize the register of the State land office, where it is made to appear that dual or double entries have been made, to cancel the invalid and erroneous entry and to issue a warrant therefor, locatable on other State lands of the same class as was originally entered.

Lieu warrants granted under Act 104 were issued without reference to specific property; rather, the warrant holder had to locate property comparable to that originally patented and then file an application for a second patent from the SLO.

Currently, there are two pending litigation matters that concern a landowner’s claim to mineral rights arising from patents granted post- 1921, pursuant to pre-1921 land warrants. The State filed a declaratory judgment action titled State of Louisiana vs. ASA Properties, L.P., et al in the 42^nd Judicial District Court, DeSoto Parish, Suit No. 72779 (the “Declaratory Action”). The State is seeking a ruling pursuant to La. C.C.P. Art. 1871 declaring that the state is the owner of the mineral rights underlying three Patents (Patent Nos. 12605, 12614, and 13132) under the legal holding set forth in Justiss Oil Company vs. Louisiana State Mineral Board of Louisiana, 45, 212 (La. App. 2 Cir. 4/14/10) 34 So. 3d 507, writ denied sub nom.

Justiss was a concursus action initiated to determine entitlement to proceeds from a producing gas well in DeSoto Parish. The issue presented was whether the mineral rights were reserved to the State under La. Const. 1921, Article IV, § 2, when a patent conveying Lot 5 (i.e. the fractional SW/4 of NE/4, Section 16, Township 14 North, Range 12 West) was issued in 1935, upon presentation of a lieu warrant that had been issued in 1919.

Justiss Oil Company (“Justiss Oil”) was both the operator of the producing well, and a claimant to the mineral rights in the disputed acreage. Justiss Oil argued that because the post-1921 patent was issued pursuant to a 1919 lieu warrant, Article IV, Section 2 of the constitution did not apply. Conversely, the State argued that the mineral rights were not conveyed by the warrant, but instead were reserved in favor of the State, in perpetuity when the patent was granted after 1921.

The trial court held for Justiss Oil. The Second Circuit, on appeal, reversed, holding that the two actions that took place prior to 1921, the passage of Act 104, and the issuance of a lieu warrant to Justiss Oil’s predecessor, did not grant the warrant holder rights in a specific parcel, and consequently, property rights vested  after the application and issuance of the patent post-1921, subject to LSA-Const.1921. Art. 4, §2.

The State, is now contending in the Declaratory Action, based on Justiss, that issuance of three patents after 1921, regardless of whether same were granted pursuant to pre-1921 lieu warrants, did not entitle the warrant holder, their heirs and assigns, to any rights in minerals, and the mineral rights remain the public property of the State; specifically, the State contends the following:

The issuance of a lieu warrant did not convey rights to any specific land, it simply authorized the holder, his heirs, or assignees to find at some indeterminate time in the future other state owned lands of the same class for which a patent could be granted.  To acquire vested property rights, the holder of a lieu warrant had to locate available land and obtain the issuance of a patent.  Until land was specifically identified and a patent sought, the State had full authority to sell its land to grant mineral leases and to take any action permitted a landowner.

On April 2, 2012, the State filed an Amended Petition to the Declaratory Action, adding parties to the suit, and correcting errors in the pleadings. Also pending in the 39^th Judicial District Court of Red River Parish, Louisiana, is an action titled Stroud Petroleum, Inc. vs. Pintail Properties, LLC, et al, Suit No. 34865 (the “Concursus Action”), involving the same property in dispute in the Declaratory Action. 

The Concursus Action was initiated by Stroud Petroleum, Inc. (“Stroud”), the operator of a well on the disputed acreage, and lessee of State Lease 18820 (the “State Lease”).  Stroud drilled and completed a well on the State Lease that began producing October 25, 2008.  Thereafter, alleged servitude owners notified Stroud that they claimed rights in the minerals underlying the State Lease by virtue of a January 26, 1966, mineral  reservation.  Upon receipt of the notice, Stroud suspended payments to the State and acquired a mineral lease from the alleged servitude owners.  The Concursus Action is still in the discovery phase; however, since the acreage in dispute in the Concursus Action is the same at issue in the Declaratory Action, one can surmise that the State will argue identical claims to the mineral rights.

A federal declaratory judgment action titled Chesapeake Louisiana, LP vs State of Louisiana Division of Administration, et al, Civil Action No. 3:11-CV-00772-BAJ-SCR, was initiated in the Middle District of Louisiana, concerning the same in dispute in the latter actions. In Chesapeake, Plaintiff, a mineral lessee, argued that by virtue of the filing of the Declaratory Action, the State was attempting a taking of their vested property interest granted in their mineral leases, without due process or just compensation in violation of the 5^th and 14^th Amendments to the U.S. Constitution and 42 USC Section 1983. Secondly, Plaintiff contended that the retroactive application of La. Const. Art. IV, Section 2 to the pre-1921 land warrants upon which Patent nos. 12605, 12614 and 13132 were based lessened the contractual duties and obligations due from the State as obligor to the warrant holder as obligee, in violation of U.S. Constitution Art. I, Section 10. This matter was recently dismissed on Motion from the State of Louisiana.

If title to property emanates from a patent granted after 1921, however, it does not mean that a private claim to minerals is fatally deficient. Further research must be conducted at the SLO to ascertain the steps undertaken by an applicant to obtain their patent. The research should include:

~ The grant and/or warrant underlying the Patent application;

A copy of the warrant should be reviewed to determine the legislation under which the warrant was granted.  The three patents at issue in the Declaratory and Concursus Actions were not all granted pursuant to Act 104; rather, two of the patents were granted pursuant to Act 55 of 1896, which authorized donations of land to injured Confederate soldiers and/or their indigent widows for their service. Arguably, Justiss is limited to warrants under Act 104, and may be persuasive at best, as to warrants and/or grants made by the State under different legislation. Moreover, one must determine whether the warrant granted a right to a specific parcel of property or a non-specific right to locate property. Warrants for specific property appear distinguishable from those granted in lieu, because they are contracts of sale in specific property rather than contracts to convey an unspecified property at an indefinite time. The warrants should be available at SLO for review. 

~ Correspondence regarding the actions taken by the warrant holder prior to 1921.

 If the warrant holder properly presented their patent and completed the requirements for application for property prior to 1921, and achieved a patent on same, Louisiana courts have held that the warrant holder acquired vested property rights in same as of the date of the application, because the issuance of a patent is but a ministerial act after 1921. See Douglas v. State, 23 So.2d 279 (La. 1945)(stating that when the plaintiff presented her lieu warrant and applied for the patent in 1919 and renewed the same in 1939, the applicants right in property became perfect and complete and applicant thereby acquired a vested right to the property the same as if the patent had issued).

One must research the application requirements necessary to achieve patent, and determine whether the applicant fulfilled such requirements prior to 1921. Such information should be located at the SLO or the State Archives.

~ Correspondence regarding actions taken by the State on applications filed for patent prior to 1921.

The court in Justiss provides an exception for patents granted post-1921 due to an error of the State of Louisiana:

Where the state failed to act on the patent application as in Hyams II (State ex rel. Hyams' Heirs v. Grace, 197 La. 428, 1 So.2d 683 (La.1941)), supra, or wrongfully denied the patent application as in Douglas (Douglas v. State 23 So.2d 279 (La. 1945)), supra, property rights vested when the application was made the same as though the patent had been issued.

One must research and determine whether the applicant fulfilled such requirements prior to 1921, but patent issuance was delayed by an error of the State. Such information should be located at the SLO or the Louisiana State Archives.

In closing, severance of the property from the sovereign is the first hurdle for determination as to rights in property. If your severance materials include a patent issued after 1921, it is essential that a thorough review of all documents supporting the patent be undertaken to determine the origin of the patentee’s rights to the property, and the application process undertaken to achieve those rights. 

LAPL 2012 Golf Tournament

by Oliver "Buster" Leblanc

                April 20, 2012 at the Farm d’Allie Golf Club witnessed 148 golfers taking to the links on an absolutely beautiful day.  The breakfast, provided by TotaLand Technologies / Bill Justice was well received with the offering of sausage biscuits, boudin balls, coffee, milk and orange juice.  The lunch, provided for by Dennis, Bates & Bullen, LLP, consisting of cheeseburgers, chicken breast sandwiches and all the fixings, was as always extremely pleasing to the hungry golfers.  Once again, the sausage poorboys provided by the Opelousas Women’s Club was a mid-morning and mid-afternoon treat enjoyed by all.

                First place in the AM round went to the foursome of Heath Suire, Morgan Landry, E J Louviere, and Danielle Brocato.  Second place were Matt Chiasson, Bruce Chiasson, Jeff Darbonne, and Pam Risher.  Third place were Matt Goulas, David Swacker, Gerald Knight, and Clark Guidry.  Fourth place were Tommy Ducharme, Greg Geoffroy, O”Neil Sullivan, and Shane Daly.

                First place in the PM round went to the foursome of Chuck Reed, Jim Maloney, Chad Bellard, and Chris Bailey.  Second place were Glenn White, Tommy Hovis, Jean Pitre, and Andre LeBlanc.  Third place were Cade Hebert, David Bergeron, Jason Holley, and Jim Enloe.

                Congratulations to all participants and, although did not necessarily place, did walk away with a door prize.  Special thanks should go to our sponsors for their generous support of this event.  Hospitality sponsors were Dennis, Bates & Bullen, LLP, Beta Land Services, LLC, Magnolia Energy Services, LLC / William J Daigle, Exploration Land Services, LLC, Arthur C LeBlanc, Jr, CPL & Associates, and Sterling Automotive Group.  Gold sponsors were Stone Energy Corporation, Acadian Land Services, Liskow & Lewis, Orbit Energy Partners, LLC, and Mark A. Mitchell, Sr, CPL & Associates.  Bronze sponsors were Ottinger Hebert, LLC, and Ellerbe and Harrison.  Red, White & Blue sponsors were iLandman.com, Diehl Land Services / Jim Diehl, Joseph “Mike” Benoit, CPL & Associates, TotaLand Technologies, Broken Oaks, LLC / Bruce Brannon, Reagan Energy Services, LLC, C H Fenstermaker & Associates, Inc, Randazzo, Giglio & Bailey, LLC, and Michael J Broussard Land Services, Inc.  Contributing sponsors were Mark Cunningham, Sr, Petrolic Services, Inc, and the ULL PLRM Program.

                A very special thank you is in order for the volunteers, without the help of these people the event would not have been possible.  Should you encounter any of the following individuals, please take a moment of your time to thank them for their assistance in making this day enjoyable – ULL PLRM students Joe Louque, Addie Langlois, Conrad Anderson, Kirk Bodenheimer, Patrick Fitzpatrick, and Jacob Bernadas, along with ULL Development Officer Rae Robinson-Brodnax; OWC members Cindy Noel, Sherrie Landry, Wanda Juneau, Diane Gallagher, Eugenia Hagood, Susie Peck, Ginger LeCompte, Charmaine Pollingue, and Marie LeBlanc;  Ditty Bag organizers Betty Wolfe, Millie Boudreaux and Marie LeBlanc; along with LAPL members Patrick Reagan, Keith Hebert, Gerald Knight, David Swacker, Christopher Roy, Keith Dronet and Buster LeBlanc.

I would like to personally thank all of you who sponsored, helped and/or attended the 2012 LAPL Charity Crawfish Boil. This year’s event was another great success story for the event and for LAPL. We had a total of 38 very generous sponsors donating over $20,000.00 to the cause, both totals exceeding all previous events. We had a total 364 in actual attendance, also exceeding all previous events.

After deducting all expenses we show a profit of $15,540.89 for donations to LARC ($7,770.45), MDA-Lafayette District Rainbow Camp ($3,885.22) and The LAPL Scholarship Fund ($3,885.22).

Once again thanks for all the help in making this event a continued success.

David P. Orgeron

LAPL Crawfish Boil Co-Chair

 company with no appendage or run both or all possible variations.

I find a generic search, using only a last name, with all variables (try the variations of “Delahoussaye” or “Schexnayder”) may be the best method, but it will most certainly increase your time of search and the number of acts to be reviewed. But that is your job and your responsibility.

For your further consideration I close with a quote from a 1926 Louisiana Supreme Court decision on duties and liabilities of abstracters:

The Claim: “The defendant company performed the work, but the abstract it furnished to the plaintiff of the Aycock deed was erroneous, defective, and misleading, and this breach of the alleged contract resulted in the loss and damage to plaintiff which gave rise to this suit.”

The Rule: “One who engages in the business of making abstracts of title impliedly undertakes that he/she possesses the requisite skill and knowledge, and that he/she will exercise due care and skill in the performance of his/her duties, and for a failure to do so he/she will be liable in damages…. Plaintiff was lulled into fancied security by the erroneous and misleading information contained in the abstract of the Aycock deed which defendant had prepared and furnished to the plaintiff.”

Good luck, you’ll need it!

Louisiana Legislative Review: 2012 Regular Session

By Richard Hines

 This year’s legislative session runs March 12-June 4. It is also the beginning of Gov. Jindal’s last term in office. Several items top the agenda, 1) Budget shortfall, 2) Education, 3) Government retirement reform. Since this is an even-numbered year, there is no restriction as to the type of matter to be discussed; and since the budget is the most critical, citizens must understand that, without the financial resources, the State cannot operate. There is a proposal for selling one State prison and possibly closing others. Also, doctors and private hospitals caring for Medicaid patients will get fewer dollars for those services, which means cuts are on the way. With more than 1,600 pre-filed bills to consider, it will be a fast and furious fight in Baton Rouge. With fewer dollars available, legislators will be looking to other industries—as well as its citizens—for the funds available to stem rising state debt. These bills contain everything from helping law enforcement with identifying criminals from fingerprints to providing exemplary damages for environmental damages and everything in between. Colleges and universities are struggling to hold down costs while their funding is eroded. Community colleges are attempting to help educate the students falling in the cracks, but with fewer funding options, they are swimming with only their nose above the water line.

 The Oil and gas industry needs to keep its eyes and ears open as bills are lobbied to resolve the decades-old cases known as “Legacy Lawsuits”. There are 13 or so bills in the House of Representatives and five in the Senate. Looks like oil and gas companies along with landowners will need to compromise to settle this one! Those interested should watch for: HB235, HB388, HB460, HB500, HB618, HB642, HB649, HB654, HB655, HB678, HB853, HB863, HB897 and SB240, SB443, SB480, SB528, SB555.

 Another big issue is hydraulic fracturing. Many have asked the La. DNR to rule with an iron fist as the non-conventional resource plays begin to pop up across the country—and Louisiana is no exception. With the Haynesville and Brown Dense in North Louisiana, the Austin Chalk and Tuscaloosa Marine Shale in Central Louisiana and now Wilcox and other plays developing in South Louisiana, the hydraulic fracturing guidelines are being examined. Those interested should begin by watching HB957, which provides for disclosure of composition of fracturing fluids. I am sure others will be introduced or tacked on as the session progresses.

 Legislation of specific concern to Landmen, their clients and/or partners are as follows: 

HB 454;  HB504; HB683; HB853; SB259; SB454; SB469; SB505; SB525,  especially SB530.

*** SB530 provides that an unsolicited offer, by mail or electronic communication, for lease
or purchase of a mineral right or interest shall include and accurately disclose what the lease covers, description of the interest or right, how much is to be paid, term of contract and 30 days right of refusal.

Bills of interest:

HB235 provides that any agreement between parties to a mineral lease, servitude, or royalty interest which provides for indemnity from liability for the obligation to restore the environment on the property to its original condition on any portion of the property on which the indemnitor did not conduct mineral development activities is declared to be null and void.

HB388 provides that any provision in an agreement pertaining to an "oilfield site" or an "exploration and production (E & P) site" is void and unenforceable to the extent that it purports to or does provide for defense or indemnity, or either, to the indemnitee against loss or liability for damages arising out of environmental damage resulting from the sole or concurrent negligence or fault of the indemnitee, or an agent, employee, or an independent contractor who is directly responsible to the indemnitee.

HB458 Provides that if a mineral lessee has failed to develop, operate, or restore the property leased as a prudent administrator, the lessor shall give the lessee written notice of the asserted breach.

HB460 Provides procedures for civil actions for the remediation of oilfield sites, for the joinder and intervention of parties, for the development of remediation plans, and for the admissibility of evidence.

HB500 Requires written notice by land owner to lessee prior to judicial demand for restoration or damages from mineral activity.

HB504 and SB469 authorizes the commissioner of conservation to unitize wells for an ultra deep structure (where true vertical depth is more than 22,000 feet) and to adopt a development plan for such ultra deep structure unit.

HB532 authorizes entering into cooperative agreements for the withdrawal of surface water. Requires approval by the secretary of the Dept. of Natural Resources for any such agreement. Limits the terms of such agreement to two years provided that such two-year periods may be renewed until Dec. 31, 2020. Authorizes any such agreement to be terminated effective Dec. 31, 2012.

HB561 and SB344 Provides that a reportable release for a natural gas distribution line is 1,000 pounds or more.

HB642 Provides for procedures in actions claiming environmental damage from certain oil and gas activity.

HB649 Provides that landowners may pursue private claims.

HB654 Requires timely remediation of oilfield sites.

HB655 and HB897 provides for the powers of the secretary of the Dept. of Natural Resources and the commissioner of conservation the authority to require a responsible owner to investigation, test, and remediate an oilfield site found to be a danger to the environment or a potential orphan site.

HB678 Provides for restoration of certain oilfield sites.

HB683 Authorizes the Dept. of Wildlife and Fisheries to issue an alternative oyster culture permit. The alternative oyster culture activities can be conducted on the leased water bottom, or in the water column or on the surface of the water above the lease. The permit is for five years or until the end of the water bottom lease, whichever occurs first, and is transferrable only with and to the extent that a lease is transferrable.

HB819 Requires the Office of Coastal Protection and Restoration to ensure that all projects funded wholly or in part with federal monies comply with any federal guidelines and criteria associated with the use of the federal monies.

HB853 provides that in absence of an agreement between the operator and the surface owner and where the surface owner is not paid at least a 1/8 royalty from a mineral lease, the operator shall fully compensate the surface owner for damages and reclaim the affected surface within 9 months of cessation of operations.

HCR42 Memorializes the U.S. Congress to take such actions as are necessary to encourage and enable the U.S. Army Corps of Engineers to expedite their wetlands permitting process.

SB240 provides that any agreement between sublessors, sublessees, assignors, or assignees affecting a mineral lease, servitude or royalty interest which provides for a defense or indemnity to an indemnitee against liability associated with the obligation to restore the leased property to its original condition, where indemnitor did not conduct mineral activities or operations or cause damage, is unenforceable and against the state's public policy.

SB257 provides that the State Mineral and Energy Board shall have the authority to lease public lands for alternative energy sources, and provides rules and regulations for those governed by ports, harbors and terminal districts and provides that ports or districts shall receive compensation for any actual cost incurred for any studies or reports conducted in order for their approval.

SB259 removes the authority of non-attorney notaries public to draft and prepare last wills and testaments or donations mortis causa, draft and prepare trusts, acts of sale, donations or any other document that transfers title to immovable property.

SB439 provides for the creation of conservation district in any parish with a population of not less than 45,000 nor more than 49,000 persons and any parish with a population of not less than 230,000 nor more than 240,000 persons.

SB454 adds an exception for a school board within a parish with a population between 42,000 and 45,000 persons is authorized to negotiate for the surface lease of any of its lands. It also provides provides that all contracts of leases of school lands or sixteenth section lands by a school board within a parish with a population of not less than 42,000 nor more than 45,000 persons that were entered into prior to January 4, 2012, for a term of not more than 5 years, are hereby ratified and confirmed and shall have the same force and effect as if the contracts of lease had been made and executed pursuant to the provisions of Part I of Chapter 10 of Title 41 of the Louisiana Revised Statues of 1950, provided that the school board receives fair market value for the leases.

SB480 provides that in an action for restoration of the surface or subsurface damages alleged to have occurred from surface mineral activity, the lessor or surface owner of the land is required to give mineral lessees written notice of the asserted breach to perform alleged damage to the property and allow a reasonable time for performance by the lessees as a prerequisite to a judicial demand for damages or dissolution of the lease.

SB505 provides if a notified overriding royalty owner elects not to participate, then the royalty owner of that notified overriding royalty owner shall receive that portion of production due to them under the terms of the contract creating the royalty between the royalty owner and the overriding royalty owner from the owner or operator drilling or intending to drill a unit well, including a substitute unit well. Present law provides that a notified owner who elects not to participate will be responsible for the his tract's allocated share of the actual reasonable expenditures incurred in drilling and operating of the well, as well as a charge for supervision, together with a risk charge of 200% of his tract's allocated share of the costs.

SB525 provides that any permit issued to drill an oil, gas, or test well must require the operator to notify any landowner affected by the well 30 days before the drilling operations commence, and must provide proof of such notification to the commissioner of conservation.

*** SB530 provides that an unsolicited offer, by mail or electronic communication, for lease or purchase of a mineral right or interest shall include and accurately disclose the following information prominently displayed in boldfaced lettering of equal or greater size:

1. Whether the offer is for a lease of a mineral right or interest, or for a purchase of a mineral right or interest, or both.
2. A description of the specific mineral right or interest for which the offer is made.
3. The total monetary amount or other compensation offered for the lease or purchase.
4. If a lease, the term of the lease.
5. That at least 30 days must lapse between the date the offer is received and the date of confection of the act of lease or purchase. The Proposed law also provides that an unsolicited offer by mail for the lease or purchase of a mineral right or interest shall not include advance payment, in whole or part, for the lease or purchase. If such payment is included, it shall be deemed an unconditional gift or donation to the recipient, who may accept and use such funds without liability or any obligation to the sender. Also provides that the recipient may use the funds for any purpose, including legal or other consultation concerning the unsolicited offer.

SB555 Provides for the remediation of oilfield sites and exploration and production sites.

SCR26 Requests the La. State Law Institute to study the issue of heirship property provisions in current law; to develop recommendations for facilitating the ability of Louisiana family members to receive title to immovable property when successive generations of their family have failed to file succession proceedings; and to develop recommendations to facilitate more equitable and economically efficient distribution of immovable property by merchantable titles.

 Richard Hines is a 1984 graduate of University of Louisiana at Lafayette with a degree in Petroleum Land Management and has more than 28 years experience as a landman. He and his wife Andrea have been married for 30 years and have four children.

Links:

The official numbers are in: 16,996 participants crowded the massive George R. Brown Convention Center in Houston in late February to wheel and deal--and to check out the latest and greatest services for landmen, many offered by LAPL members and their respective companies. 

For those lucky enough to get a ticket, former President George W. Bush ("Bush 43") was the keynote speaker at Thursday's charity luncheon. NAPE Expo LP paid all the luncheon’s expenses, allowing 100 percent of more than $567,000 from sponsorship, ticket and table sales donated by the more than 2,000 attendees to go directly to Canine Companions for Independence, Lone Survivor Foundation, the George W. Bush Presidential Center Military Service Initiative, Operation Finally Home and Support-A-Soldier.

Although they were all busy and seriously engaged in their work, several of our members and Lafayette residents--including former LAPL President Sam Sheets--graciously allowed us to take pictures of them doing what they do best. We wish each and every one great success for 2012 and beyond.

First National Bank, USA v. DDS Construction, LLC, 2011-1418 (La. 1/24/2012).

In this case, the Supreme Court of Louisiana addresses the use of an instrument frequently utilized to correct errors in recorded documents: the notarial act (or affidavit) of correction.

A construction company granted a mortgage to a bank on subdivision lots it was seeking to develop.  The company sold one of the lots, “Lot 8,” but failed to use the funds to pay off its loan.  The purchaser of Lot 8 granted a mortgage to a second bank to finance its purchase.  The bank holding the first mortgage sought foreclosure.  Later, as a result of the construction company paying off part of its debt as to other lots, the bank recorded a request to cancel the first mortgage as to certain property, but erroneously listed Lot 8 among those to be released. 

Thereafter, the bank recorded an Act of Correction to remove Lot 8 from the Request for Cancellation.  This act was executed by the bank’s vice-president, but not by the notary who passed the request.  Later, the bank filed a second Act of Correction, seeking to fix the same mistake, but, this time, the correction was executed by the notary.

The bank that held the second mortgage then sought to have its mortgage ranked superior to all others, arguing that the first bank canceled its mortgage by the filing of its Request for Cancellation (which erroneously included “Lot 8”) and that the Act of Correction could not reinstate it.  The dispute wound up the in the Louisiana Supreme Court.  The primary issue before the Court was whether a notarial affidavit of correction can affect a mortgage that was previously canceled.

The Court decided the case by first examining the notarial act correction statute at issue, La. R.S. 35:2.1, which provides, in pertinent part:

A. A clerical error in a notarial act affecting movable or immovable property or any other rights, corporeal or incorporeal, may be corrected by an act of correction executed by the notary or one of the notaries before whom the act was passed, or by the notary who actually prepared the act containing the error. The act of correction shall be executed by the notary before two witnesses and another notary public.

B. The act of correction executed in compliance with this Section shall be given retroactive effect to the date of recordation of the original act. However, the act of correction shall not prejudice the rights acquired by any third person before the act of correction is recorded where the third person reasonably relied on the original act. The act of correction shall not alter the true agreement and intent of the parties.

The Court found no limitation in the language of the statute to prevent its application to mortgages.  Next, the Court considered whether the inclusion of Lot 8 in the list of released properties can be considered a “clerical error” under the statute.  The Court stated that it “hold[s] that including, or failing to include, a number in a series of numbers is just one of the almost limitless examples of clerical errors.” 

However, the Court found that the first Act of Correction did not comply with the statute.  La. R.S. 35:2.1 requires that the correction be executed by the notary before whom the act was passed or the notary who actually prepared the act containing the error.  The first Act of Correction was executed by a company vice-president, not a notary.  The Court found that the second Act of Correction, which was executed by the proper notary, complied with the statute.

Further, the Court held that, in accordance with paragraph B of the statute, the corrections can be given retroactive effect to the date of the filing of the Request for Cancellation.  The Court states that:

The effect of making the correction to the Request for Cancellation retroactive deletes the reference to Lot 8 as though it was never there; [the mortgage] was never cancelled from Lot 8 and the [the first mortgage] continued to prime the [second mortgage].  We find the holders of the [second mortgage] suffered no prejudice as contemplated by the statute as a result of the filing of the Act of Correction. . . .

The bank holding the second mortgage argued that a mortgage may only by reinstated by a court and that private parties may not use La. R.S. 35:2.1 to revive the mortgage.  The Court rejected this argument, reasoning that prior cases holding that only a court may reinstate a mortgage pre-date the enactment of La. R.S. 35:2.1 in its present form and, in any event, “the present facts do not constitute the reinstatement of a mortgage. Here, by operation of the statute, the mortgage was never cancelled as to Lot 8, so there is no mortgage that would need to be reinstated.”

The Court also looked at the specific facts of the case and determined that the correction served the true intent of the bank in the Request for Cancellation, which was to release certain properties other than Lot 8 from its mortgage.

This case raises a few issues worth discussing.  First, the statute requires some very specific formalities.  For example, it only applies to “notarial acts,” which the Supreme Court notes are also referred to as authentic acts, which are instruments executed in the presence of two witnesses and a notary.  Thus, the statute does not appear to apply to an instrument that contains only a direct or witness acknowledgement, in which the signing party or a witness later acknowledges the signature in the presence of a notary.  Further, the act of correction, itself, must be executed before two witnesses and another notary public.  As a result, both the original act and the act of correction should be in authentic form.   

The act of correction must be executed by (1) the notary (or one of the notaries) before whom the act was passed, or (2) by the notary who actually prepared the act containing the error. This requirement can lead to some difficulties for landmen and title examiners where the act of correction is executed in the second case, that is, by a notary other than one who passed it.  In that scenario, it may be impossible to determine whether the act complies with the statute because one may not be able to ascertain or verify whether the notary signing is the one who actually prepared the original document.

Greater challenge may lie in determining whether the correction “alter[s] the true agreement and intent of the parties” (La. R.S. 35:2.1(B)).  For example, where a correction inserts the middle name of a party (changing “Jane N. Smith” to “Jane Nancy Smith”), it is unlikely that the state of mind of the parties will be called into question.  However, what about where the description of property in a sale is changed because of a purported typographic error  – say, “the SW of SE of Section 12” amended by a notarial act of correction to “the SW of SW of Section 12”?  Or, where the notarial correction inserts a mineral reservation into a sale that originally contained no such reservation?  How would a third party looking only at the public records know that the corrections comport with the true intent of the parties?  Courts can look at evidence and testimony pertaining to the intent of the parties; a landman or title examiner looking only at the public records does not have that luxury. 

In short, be wary when you come across a notarial act of correction because of both the stringent formalities required by La. R.S. 35:2.1 and the difficulty of determining whether the correction conforms with the subjective intent of the parties to the original act. 

Adams v. Chesapeake Operating, Inc., 2011 WL 6370512 (W.D. La. 2011).

In this case, an unleased owner of land within a unit sent Chesapeake Operating, Inc., the operator of a unit well, a letter demanding “production payments” within thirty days of receipt of the letter.  The property owner thereafter filed suit claiming payments for his share of production, as well as “a penalty up to twice that amount and interest . . . as well as attorney’s fees,” citing Sections 212.21 to 212.23 of the Mineral Code.  These statutes provide:

§ 212.21. Nonpayment of production payment or royalties; notice prerequisite to judicial demand

If the owner of a mineral production payment or a royalty owner other than a mineral lessor seeks relief for the failure of a mineral lessee to make timely or proper payment of royalties or the production payment, he must give his obligor written notice of such failure as a prerequisite to a judicial demand for damages.

§ 212.22. Required response of obligor to notice

The obligor shall have thirty days after receipt of the required notice within which to pay the royalties or production payments due or to respond by stating in writing a reasonable cause for nonpayment. The payment or nonpayment of the sums due or stating or failing to state a reasonable cause for nonpayment within this period has the following effect.

§ 212.23. Effects of payment or nonpayment with or without stating reasonable cause therefor; division order

A. If the obligor pays the royalties or production payments due plus the legal interest applicable from the date payment was due, the owner shall have no further claim with respect to those payments.

B. If the obligor fails to pay within the thirty days from notice but states a reasonable cause for nonpayment, then damages shall be limited to legal interest on the amounts due from the date due.

C. If the obligor fails to pay and fails to state a reasonable cause for failure to pay in response to the notice, the court may award as damages double the amount due, legal interest on that sum from the date due, and a reasonable attorney’s fee regardless of the cause for the original failure to pay. 

Chesapeake claimed that the landowner could not recover the “double damages” penalty under these provisions because an unleased mineral owner is not a royalty owner and is not entitled to a “production payment”.  The landowner argued that payments due to an unleased owner are a type of “production payment”.

The court agreed with Chesapeake.  Without making a determination as to the exact definition of “production payments,” the court reasoned that these statutes apply to parties “connected, in some form, whether directly or indirectly, by a mineral lease or some type of contract or agreement.”  Section 212.21, for example, refers to the “failure of a mineral lessee,” and the title of the law that enacted these statutes referenced its purpose as providing for remedies for “the purchaser of a mineral production payment.”  Because the unleased landowner was not a purchaser of mineral production payments and because there was no lease connecting the parties, the “double damages” penalty provisions of Sections 212.21 to 212.23 were not available to him.

LAPL Members Share Christmas Spirit with the Healing House

by Elise Talbot

Happy 2012! As I look forward to a new year with a new Professional Group, a wedding day, and hopefully a busy work schedule.  I look back on 2011 and I am so thankful for all the Blessings that I was able to share with the LAPL.  Last year you all aided the LAPL in the project at Lafayette General to give back to the pediatric patients of the Acadiana area. This year we called upon your generosity again to help a local non-profit, grief center of Lafayette, The Healing House.  The outpouring of LAPL kindness was again just absolutely humbling.

This non-profit agency focused on helping children ages 4-18 through grief issues in a group atmosphere does not provide counseling or therapy, but a safe place, where children who have experienced a death of a loved one can express their thoughts and feelings in a variety of ways.  In support groups facilitated by volunteers, children learn to express their grief through interactive play, expressive artwork and discussion groups with peers experiencing the same trauma.

            The house has the cozy feel of "Grandma's Cottage". Although Healing House is geared toward children, parents will also find a place to talk and share feelings with others in their situation or spend quiet time reading on the enclosed porch or in the meditation garden.

Thanks to your help we raised $6,550 to help with the needs of the Healing House.  Please help me in thanking all of our Compassionate sponsors. 

Ottinger Hebert, L.L.C.

C. David Allen, et ux

J. Percy Bernard, Jr.

Byron C. Verillion, Jr., et ux

Michael P. Westbrook, et ux

W. K. Rainbolt, Jr.

Merit Energy Services, LLC

Debbie B. Springer

Cliff Schumacher, et ux

Gary Hebert

S&R Resources, Inc.

Classic Petroleum, Inc.

Marlene Venable

Oil Land Services, Inc.

Tim Ledet, et ux

Durelle and Laura Allen, Jr.

Hypatia LaCour,

Schoeffler Energy Group, Inc.

Kathryn Thorpe

Barron and Kathleen Roche

Jack Lewis

Scott Sonnier

Brandon Comeaux

Robert Earl Willis

Roy Young

Lonnie Saunier

Antoinette Klump

Mandy Todd

Nadya Hartsook

Lauren Gessey

Josk Allen

Joel Scallan

Mona and Sammy Russo

Chris Carter

Tiffany Gispert

Rudy Dupuis

Travis Brazell

Lindsey Saba

Tesa and Justin Mernedino

Merendino Energy Group

Jim Marceaux

Murray Dickens

Jon and Mary Stimac

Ruth Ann Gannon

Lara Warren

Joni Faul

Keith Hebert

Elise and Tommy Talbot

Frank and Kelly Lipari

Please take the time to check out the Healing House photos to see what the LAPL will be helping the kids and families with in this New Year.

Thank you and may God Bless You,

Kindness,

Elise Talbot

Executive Director,

Christmas Charity Chairperson

CAPTIONS:

1) Hand prints of Healing House children who are always welcome back.

2) The Gaming System “Wii” raised the money for last year for the patients in the Pediatric Unit at Lafayette General Medical Center.

 3) Arts and Crafts Room at the Healing House, where the children can express themselves.

4) Free to Be Me Room, the Rules of the Healing House.

5) Free to Be Me Room, where the children can express and act out some the occasions they may be having trouble letting go

6) Free to me Room. Many hats to try on in the Healing House’s Free to Be Me Room.

7) Hurricane Room.  When the kids need a safer room to let out some of the feelings that may not be to friendly.

8) Support Group Sharing Room.  Were the kids can share in the grieving process.

9) Art work in the meeting room above the fireplace, This Christmas Season.

10) Meeting Room is very cozy and welcoming for the Families in Acadiana.

Louisiana Legal Update

By Jamie D. Rhymes
Liskow & Lewis

Divisibility of Mineral Leases

In the Haynesville Shale, there have been a number of deals where companies have purchased “deep rights” in leases in certain areas held by production. A recent suit, Georgia F. Hodgson and Eugene F. Hodgson v. Chesapeake Louisiana, L.P., et al, Dkt. No. 535185-C, Caddo Parish, challenged whether such an assignment of deep rights could divide the mineral lease, such that there would be separate maintenance obligations for the shallow rights and the deep rights. The trial court held that the lease was divided by an assignment of the deep rights. This short article will review the jurisprudence regarding lease divisibility and the recent decisions that might lead to some guidance on whether a lease can be divided by an assignment of the deep rights.

Historical Jurisprudence on Lease Divisibility
Historically, courts have held that a partial assignment of a lease may divide a mineral lease. For example, in Roberson v. Pioneer Gas Co., 137 So. 46 (La. 1931), a 40 acre portion of a 125 acre lease was assigned to a third person. A well was drilled on the 40 acre tract, but there were no operations on the remaining 85 acres. The lease contained a “division rental” or “rental apportionment” clause. Such a clause generally provides as follows:

"It is hereby agreed in the event this lease shall be assigned as to part or as to parts of the above described lands, and the assignee or assignees of such part or parts shall fail or make default in the payment of the proportionate part of the rents due from him or them, such default shall not operate to defeat or affect this lease in so far as it covers a part or parts of said lands upon which said lessee or assignee thereof shall make due payment of said rental."

The Roberson court held that the division rental clause had the effect of making the lease divisible. Thus, the operations on the 40 acres did not maintain the lease as to the remaining 85 acres. See also Swope v. Holmes, 169 La. 17, 124 So. 131 (La. 1929), Tyson v. Surf Oil Co., 195 La. 248, 196 So. 336 (La. 1940). The use of this clause to divine intent to make the lease divisible by the parties is questionable, as on its face it is nothing more than an effort to preserve a portion of the lease if one of the lessees fails to make a delay rental payment properly.

The Hodgson Case
In Hodgson v. Chesapeake Louisiana, L.P., the predecessor in title to the Plaintiffs, Mary Flournoy, granted a mineral lease to Fortune Gas and Oil (“Fortune”) in 1975 covering 52 acres of land in Caddo Parish, Louisiana (the “Flournoy Lease”). In 2006, Fortune assigned to Fairway Resources all depths below the Rodessa Hill formation in the Flournoy Lease in certain geographical areas without any reservation. The lease contained a division rental or rental apportionment clause which stated:

". . . the rentals payable hereunder shall be apportioned as between the several leasehold owners ratably according to the surface area of each, and according to the undivided interest of each, and default in rental by one shall not affect the rights of other leasehold owners hereunder. An assignment of this lease, in whole or in part, shall, to the extent of such assignment, relieve and discharge Lessee of any obligations hereunder and , if Lessee or assignee of part or parts hereof shall fail or make default in the payment of the proportionate part of the rentals due from such Lessee, or assignee, or fail to comply with any other provisions of the lease, such default shall not affect this lease insofar as it covers a part of said lands upon which Lessee or any assignee thereof shall make payment of said rentals."

The Plaintiffs argued that the assignment of the deep rights divided the lease pursuant to Roberson and the older cases regarding division of leases when there is a division rental clause. The Defendants countered that the lease was not divisible and further, that the assignment was properly a “sublease” and as such could not have divided the lease.

The trial court ruled that the rental apportionment clause, cited above, created divisibility when the lease was partially assigned. One issue for the court was whether the lease could be divided “horizontally” in addition to being divided “vertically.” For example, consider a vertical division as taking a 100 acre lease making two 50 acre leases, both of which are unlimited as to the depths each covers. A horizontal division would be to take the same 100 acre lease, and make two separate 100 acre leases, but one covering rights from surface to 100’, and the other all depths below 100’.

The trial court relied upon the decision in Scurlock Oil Co. v. Getty Oil Co., 278 So.2d 851 (La. App. 3d Cir. 1973) to hold that the lease could be divided horizontally. The trial court noted that in Scurlock , the Third Circuit theorized that a mineral lease could be horizontally divided under the right circumstances, but held that such a division did not occur in that case. The Louisiana Supreme Court reversed Scurlock, but on other grounds, Scurlock Oil Co. v. Getty Oil Co., 294 So.2d 810 (La. 1974), but on other grounds and did not reach the question of whether a mineral lease could be horizontally divided by an assignment.

Nevertheless, the Hodgson court followed the Third Circuit’s logic in Scurlock, and held that the Flournoy Lease could be horizontally divided. The Defendants in Hodgson also argued that the transfer of the Flournoy Lease was a sublease, and not an assignment, and thus did not divide the lease. In simple terms, Louisiana mineral law distinguishes between an assignment conveying all of the assignor’s interest in a lease, and a sublease, under which the sublessor conveys a portion of his interest, but not everything. (Thus, an “assignment” under which the assignor retains an overriding royalty interest is actually a sublease).

The Hodgson Defendants argued that under the Third Circuit’s opinion in Scurlock, a partial assignment of a horizontal stratum was a sublease, as the owner of the deep rights necessarily reserved the right to access the surface of the land. The trial court in Hodgson did not address why they considered the transfer of the Flournoy Lease as an assignment, but one can only assume that the trial court took the position that without a reservation of an overriding royalty or some other interest in the deep rights, the transfer was an assignment and not a sublease.

Hoover Tree Farm v. Goodrich
Several months prior to the Hodgson opinion, the Second Circuit gave some guidance on the issue of divisibility of mineral leases. In Hoover Tree Farm, L.L.C. v. Goodrich Petroleum Co., L.L.C., 63 So.2d 159 (La. App. 2d Cir. 2011), the court addressed the impact of a Most Favored Nations (“MFN”) clause. The MFN at issue applied only to Goodrich Petroleum Company, and its “respective successors and assigns.” Goodrich assigned a 50% working interest as to all depths below the Cotton Valley formation to Chesapeake Louisiana LP (“Chesapeake”).

Although not pertinent to the court’s decision as to whether Chesapeake was a successor or assign of Goodrich, the court noted that the language relied upon in the Roberson case, supra, “contemplated only a type of limited lease division upon the nonpayment of a portion of the lease rentals during the primary term” and did not provide for a division for all purposes. Id. at 174. Applying this strict construction of lease divisibility, the court that the assignment of a 50% working interest in the deep rights in the subject lease did not divide the lease, as there was not a transfer of a specific geographical portion of the lease. Id. at 175 n18. It appears that the panel in the Hoover Tree Farm was of the view that the rental apportionment clause did not indicate an intent to make the lease divisible, even as to vertical division. It is difficult to imagine, therefore, that the Hoover Tree Farm would have found a basis for horizontal lease division. The Hodgson case is on appeal and it appears that a correct result would be to reverse the decision as to its holding that a lease can be horizontally divided based upon the rental apportionment clause.

The defendants in the Hoover Tree Farm case also took the position that the transfer to Chesapeake was a sublease, and not an assignment, and thus Chesapeake was not a “successor or assign.” The court reviewed the jurisprudence regarding determining whether a partial transfer of a lease is to be considered a sublease or assignment, including the Scurlock decision from the Third Circuit. The court found that the no prior case had involved the transfer of an undivided interest in a mineral lease, and in that situation, the court found that the transfer of a 50% interest was not a sublease, but an assignment of an undivided interest in the deep rights, leaving Goodrich and Chesapeake as co-owners of the deep rights. Thus the court found that Chesapeake was an “assign” under the MFN clause, and the lessees were obliged to pay the higher amounts owed pursuant to the MFN clause.

Jamie Rhymes represents oil and gas companies, from the largest to the smallest, in a in a
wide variety of energy litigation and legal matters. He has extensive experience in oil and gas
litigation, including royalty litigation, lease litigation, joint operating agreement disputes, loss
of control litigation, and legacy litigation. Mr. Rhymes has appeared before the Commissioner
of Conservation and the State Mineral Board in various oil and gas matters for clients. He also
performs title examinations. He renders drillsite and division order title opinions for the energy
industry in connection with the drilling of wells and disbursing proceeds of their production.

Local Government Embraces and Plans for Future CNG Conversions

By Don Bertrand

After beginning my first term of office as Councilman and Chairman of the Lafayette Cons olidatedGovernment (LCG) Council and the Metropolitan Planning Organization* (MPO) in January 2008, discussions began considering fuel alternatives for the fleet vehicles owned and operated by local government entities in an attempt to make our local government fleets more cost efficient.

In the summer of 2008, LCG and the MPO initiated a study of alternative fleet fuels. In 2010, following two years of research – which included reviews of infrastructure cost, fuel cost, supply availability, future long term fuel options and short term alternatives – it was determined by the public transportation fleet managers of Lafayette Parish, the School System and the University of Louisiana at Lafayette transit systems that Compressed Natural Gas (CNG) would be the best fuel choice, both in the short and the long term. All three administrations supported the joint recommendation of the fleet managers and a major CNG Conversion plan was initiated. Staff members of the MPO, developed and programmed a five year CNG Conversion Plan for Lafayette Consolidated Government, Lafayette Parish School System and the University of Louisiana at Lafayette transit systems. Obviously a key component to the success of this program is fueling locations. The Lafayette CNG Plan includes installation of three new CNG stations.

The first station will be located on and fronting East University Avenue adjacent to the Lafayette Consolidated Government’s Public Works Administration building. In late 2011, construction bids were let with an estimated completion date of April, 2012.

A second CNG station is anticipated in the area of La. Hwy. 89 (Southpark Road) and East Pinhook Road with a third CNG station expected in an area near the Interstate 49 and Interstate 10 Interchange.

In an effort to expand on a CNG market, the Lafayette MPO is also working with public transit representatives in the eight parish area to develop a multi-parish regional transit system utilizing and coordinating CNG vehicles. Additionally, the Louisiana Transit Design Studio, based in Lafayette and working with the University Industrial Design program is advancing design and development of a CNG para-transit vehicle and is in collaboration with seven MPOs around the state. The MPOs have determined a statewide need for a heavy duty (20 year) para-transit vehicle for use by local transit operators.

An important need identified in the Lafayette CNG Conversion program is education for the public and local business on the safety, the cost efficiencies and the stable in-state supply of CNG fuel sources. A 20- minute public information video is being prepared to help bridge this information gap. Public vehicles and transportation fleets will transition to CNG fuel system as funding is identified. The LCG council recently approved submission for Federal conversion grants which have target dates of April 2012. Currently, 100 Lafayette Consolidated Government vehicles are scheduled for conversion over the next several months. The School Board and University systems begin conversions this year (2012) as more CNG service stations come on line. The Lafayette Transit System has installed a slow fill station for the five new CNG buses delivered in July of 2011 and are now in operation. The University Transit system will be transitioned to CNG with four new buses scheduled for delivery in March 2013.

*The Metropolitan Planning Organization (MPO) is mandated by the Federal Government to receive Federal dollars which return to our community through the Federal Highway Administration and the State of Louisiana. The MPO is made up three subcommittees, the Citizens Action Committee, Transportation Policy Committee and the Transportation Technical Committee, with the final decision on any matter going to the Metropolitan Planning Organization which is currently the Lafayette Consolidated Council. The MPO designated area is determined by population.

Links:

LOUISIANA LEGAL UPDATE

By Lauren L. Garner

Dennis, Bates & Bullen, L.L.P.

 Drilling Permit Obtained by Lessee During the Primary Term of a Current Lease is Not a Title Defect as to a Top Lease Sufficient to Reject the Bonus Draft.

 Pilkinton v. Ashley Ann Energy, LLC, et al, 46, 650 (La. App. 2 Cir. 11/2/11), 2011 WL 5170296. NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS.  UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

 In June 2008, Ashley Ann Energy, LLC, (“AAE”), on Chesapeake’s behalf, contacted the plaintiffs, Amy and Roy Pilkinton, about the possibility of obtaining an oil, gas, and mineral lease on 86.20 acres in Bossier Parish. The Pilkintons informed AAE that their property was currently leased to KCS Resources (“KCS”). The parties discussed the possibility of a top lease to become effective after the primary term of the KCS lease expired on December 1, 2008 (the “Top Lease”). 

 On August 7, 2008, the Pilkintons executed the Top Lease in favor of AAE, which was on a standard printed Bath form with an additional Exhibit “A” attached. The primary term was listed as three years, but was not to commence until December 2, 2008. Exhibit “A” contained two pertinent provisions:

 1. This lease is expressly made subject to that Oil and Gas Lease dated December 1, 2005 from Roy L. Pilkinton and Amy H. Pilkinton to KCS Resources, Inc., ... and Lessee herein accepts this Lease subject to the terms of the Prior Lease.... It is not the intent of the Lessor and Lessee to cloud or in any way to impair any rights, titles, and interests, if any, of the parties arising under the Prior Lease....

2.   Lessor makes no express or implied warranty of title whatsoever, and Lessor shall have no obligation to return any bonus consideration or benefits received under any of the terms hereof, including, but not limited to royalties, shut-in payments, or other monies paid to Lessor on account of a failure of title. Lessee takes this lease at his own risk and peril.

In consideration of the Top Lease, the parties agreed that the Pilkintons would initially receive one-fourth of the total bonus payment. The other three-fourths of the bonus would be paid in the event that KCS’s lease terminated.  Upon signing of the lease, the Pilkintons were given a draft for $431,000. On the face of the draft, AAE included a provision that stated “upon approval of title but not later than 20 banking days after sight.”

 Due to Chesapeake and AAE’s failure to pay the draft, the Pilkintons filed suit. The Pilkintons filed a motion for summary judgment to determine the validity of the Top Lease, and later filed for leave to amend their petition to seek recovery of the additional three-fourths bonus payment ($1,293,000) since the KCS lease had expired. The defendants filed a cross-motion for summary judgment and opposed the plaintiffs’ request to amend.  The trial court granted the plaintiffs’ motion for summary judgment, denied the defendants’ cross-motion for summary judgment, and granted plaintiffs’ request to file their amended petition. The defendants appealed the rulings on the summary judgments. The appellate court affirmed the trial court.

 A mineral lessor impliedly warrants title to the interest leased unless such warranty is expressly excluded or limited. The liability of the lessor for breach of warranty is limited to recovery of money paid or other property or its value given to the lessor for execution or maintenance of the lease and any royalties delivered on production from the lease. La. Mineral Code art. 120. As a legal right, the top lease exists at its inception as a mere hope or expectancy in the extinction of existing superior leasehold rights, which extinction will confer upon the top lease owner the essence of a mineral lease, i.e., the right to explore for and produce minerals.  Patrick G. Tracy, Jr., The Effects of Top Leasing in the Louisiana Law of Oil and Gas, 43 La. L. Rev. 1189 (1983). 

 Both parties cited Texas General Petroleum Corp. v. Brown, 408 So. 2d 288 (La. App. 2d Cir. 1981). In that case, the lessors expressly excluded any warranty against pre-existing mineral leases still in effect, “not even for return of bonus monies.” The drafts for the bonus payments were conditioned “upon approval of title ... by drawee not later than 60 days.” The drafts were paid at the end of the 60-day period, but the lessee brought suit claiming the payments were made in error. The court rejected these claims, finding that there was no conflict in the non-warranty provision of the lease and the lessee’s 60-day period to determine the existence of any title issues. After the end of the 60-day period, the non-warranty provision was given effect. 

 The court distinguished this matter from Texas General because this dispute concerns a third provision in the parties’ lease contract in addition to its non-warranty provision and the 20-day Draft Provision. The court considered the effect of the KCS lease provision contained in paragraph 1 of Exhibit “A” to the Top Lease.  Exhibit “A” noted that “this lease is subject to a Prior Lease and Lessee recognizes that this

 Exhibit “A” shows that the parties’ agreement was clearly a prospective agreement for a lease that might become effective on December 2, 2008. They agreed to become bound by this executory contract in August, and they might later become bound as lessor and lessee in a new lease. The KCS lease had a primary term of three years that ended December 1, 2008. The lease also contained the typical habendum clause. KCS’s permitting of a proposed unit well affecting the Pilkintons’ property in August was not an event by itself having any relevance to the maintenance of the KCS lease under the terms of the habendum clause. The act of permitting a well, even if it had occurred on December 1, was insufficient to extend the KCS lease beyond its primary term. Therefore, the defendants were obligated to pay the $431,000 draft. 

 The defendants argued the 20-day Draft Provision released them of that obligation, but the court disagreed. Just as the KCS well permit did not have any bearing in August 2008 upon whether the KCS lease might be extended beyond its primary term on December 1, the KCS well permit was not a flaw in the Pilkintons’ title. The parties had agreed that (1) the property was subject to the KCS lease; (2) the Pilkintons’ land would become leased on December 2 if the KCS lease terminated; and (3) AAE would pay $431,000 to obtain the executory contract and an additional payment if the KCS lease terminated. None of these tenets of the agreement was altered by the KCS permit, and AAE’s conditional right to acquire the December 2 lease remained the same after the permit. Accordingly, the KCS well permit is not a title flaw falling within the meaning of “approval of title” of the 20-day Draft Provision when the overall context of the parties’ contract is considered, and such provision does not excuse AAE from its obligation to pay the $431,000 draft.

 The defendants also argued that error vitiated the parties’ consent because the Pilkintons knew that KCS planned to drill a well affecting the KCS lease and that if the defendants knew of such imminent drilling, they would not have been interested in leasing the Pilkintons’ property. This argument was also rejected. The court noted that the KCS lease itself implies that the company would desire to develop its investment in the lease by exploring for oil and gas during the remainder of the primary term of the lease. The defendants’ intent for their acquisition of the Top Lease was given in full view of the contingency for the extension of the KCS lease after December 1 which might result from a decision by that company to drill. Such was an accepted risk by the defendants upon entering into the Top Lease. 

 A copy of the case discussed above may be obtained upon request from Lauren L. Gardner by facsimile (337-233-9095) or e-mail (gardner@dbblaw.net).

Lauren L. Gardner is an associate in the Lafayette office of Dennis, Bates & Bullen, L.L.P.  She was born March 25, 1981, in Cut Off. She graduated from Louisiana State University in 2003 with a B.A. in History and graduated from Louisiana State University School of Law in 2006 with a J.D. and a B.C.L. During law school, Ms. Gardner was a law clerk for Chief Judge Henry N. Brown, Jr. at the Second Circuit Court of Appeals.  Ms. Gardner is admitted to the bar in Louisiana, the United States District Courts for the Western, Middle and Eastern Districts of Louisiana, and the United States Fifth Circuit Court of Appeals. She is also on the board of the Lafayette Young Lawyers’ Association and the Editorial Committee of The Promulgator.

SUNCOAST LAND SERVICES, INC., seeks Title Agents and Landmen experienced in surface title, pipeline negotiations and acquisitions for long term projects in SE Texas.   Additionally, staffing needs for multiple projects located in Louisiana.  Qualified candidates must be willing to travel and possess a diverse scope of skills to perform document interpretation, contract negotiation, management of multiple deadlines, internet based communication, proficient in Microsoft Excel, report preparation and basic mapping.  All such qualified candidates seeking a long term association with SunCoast should submit your resume and desired day rate to resume@suncoastland.com.  Jobs are available immediately.

All such submittals will be held in confidence.

Links:

TO FEE OR NOT FEE, THAT IS THE QUESTION; DISTINGUISHING BETWEEN ACTS OF SALE AND RIGHTS OF WAY

By: Ashley Green and Kate Labue

 With the majority of the Haynesville Shale area having been leased and gas production underway, the focus has now turned to the ownership of minerals in and to road, canal and rail beds.  If it is clear from the language of the document that what was intended to be conveyed was a right of way or a fee simple title then no further inquiry can be made.[i]  Extrinsic evidence may only be considered if the instrument contains ambiguous language.  However, it is common for older transfer instruments to contain ambiguities that give rise to the question of whether the contracting parties intended to create a right of way (i.e., servitude) or to transfer full ownership.[ii]  Courts in Louisiana have often analyzed various deeds, including railroad deeds, road rights of ways, canal grants, and other various agreements in determining whether they are, in fact, deeds translative of title or deeds granting mere rights of way over lands.  

A.        The Very Conveyances Of His Lands Will Hardly Lie In This Box[iii]

In Louisiana, the conveyance of a right of way is to be regarded as a mere servitude and not as a transfer of a fee-simple title to land unless the deed evidences that the parties intended otherwise.[iv]  It is important to recognize that one cannot rely solely on the title of the instrument for a correct designation.  The use of the words “right of way” in the granting clause of an instrument is also not conclusive.  These instruments must be interpreted as a whole to determine the rights granted to a purchaser under Louisiana law.[v]

Because of the particular ambiguities presented, historically, transfer language was often analyzed in railroad deeds.  In John T. Moore Planting Co. v. Morgan's Louisiana & Texas Railroad & Steamship Co., 126 La. 840, 53 So. 22 (1908), the issue was whether an instrument which conveyed a strip of land, not more than two lines of track in width, was a fee conveyance or a right of way for railway purposes.  The court held that the instrument created a mere servitude because “if a strip of land running across the plantation had been intended to be conveyed, the parties would hardly have failed to specify its width.”  The court noted that the donor reserved the right to cultivate “the land on either side of the line of the road not in actual use by said railroad company.”  According to the court, these stipulations were inconsistent with the idea that a fee of a strip of land was conveyed to the railroad; but rather indicated strongly that the donor only intended to transfer a mere right of passage.  Similarly, in Bond v. Texas & Pacific Railway Co., 181 La. 763, 160 So. 406 (1935), the court examined a deed that granted to the Natchitoches Railway Company “a right of way 150 feet in width over any of his lands through which the line of road of said Company now passes," and the right to “fell all timber within reach of center line of said road,” but reserving to Grantor the right to cultivate lands on both sides of the rail. The court found that the stipulations in the grant were inconsistent with the intention to convey a fee ownership of the land to the railroad, and found the deed merely created a right of way.

In Rock Island, Arkansas & Louisiana Railroad Co. v. Gournay, 205 La. 125, 17 So.2d 8 (1943), reh’g denied 205 La. 164, 17 So.2d 21 (1944), the Louisiana Supreme Court held that an instrument which transferred to a railroad company, its successors and assigns “in perpetuity, a strip of land, one hundred (100) feet in width, over and upon the following described land,” was a mere servitude. In making their decision, the court noted that the instrument only granted the grantee “the right to change water courses, and to take stone, gravel and timber and to borrow earth, on said right of way for the construction and maintenance of said railroad.”  While the granting clause may have been favorable to the railroad, the document, which contained the words “in perpetuity” and “over and upon,” evidenced an intention to create only a right of way. 

In Esso Standard Oil Company v. Texas & New Orleans Railroad Company, et al, 127 So.2d 551 (La. 3d Cir. 1961), a concursus proceeding was instituted by an oil company to determine ownership of payments attributable to royalty interests.  In the deed, grantors did “grant, sell, convey and deliver to the Morgan’s Louisiana & Texas Railroad and Steamship Company…a strip of ground one hundred feet wide, for a right of way through, over and across the following described land…”  The court found that the deed only granted a right of way.  It based its decision on the following factors:  (1)  the purchaser had the right to enter land adjacent to the right of way and deposit timber and surplus dirt; (2) there were frequent references in the deed to a “right of way;” (3) references to damages to adjacent property, all of which provisions are common in right of way deeds; and (4) the recitation in the deed that the right of way shall be “in perpetuity” rather than “forever,” which would connate a more permanent transfer of ownership.

B.       Sohio Ye Doing So Far?

In Sohio Petroleum Co. v. Hebert,[vi] Sohio Petroleum Company instituted a concursus proceeding to have the court judicially determine the ownership of certain royalties accruing from two gas production units located in Calcasieu Parish, Louisiana. Made defendants to the concursus proceeding were Sweet Lake Land and Oil Company (“Sweet Lake”) and the heirs and assigns of Ducre Hebert (hereinafter referred to as the ‘Hebert Group’). The need for the concursus was the ambiguity contained in a deed from North American Land and Timber Company (“North American”) to Ducre Hebert (“Hebert”) dated January 18, 1918,[vii] which transferred certain property to Hebert, “less right of way for canal and public road on west and south sides....”  After trial on the merits, the trial court held that North American retained only a servitude for canal and road purposes, and thus, fee title to all of the land described in the deed was conveyed to Hebert. Sweet Lake appealed. 

The appeals court outlined the following factors that courts have used in determining whether the deed conveyed a right of way or fee simple title:

(1) the consideration recited in the deed;

(2) whether a specific measurement is given to the “right of way;”

(3) whether the party claiming the fee title had an actual need for such title;

(4) to whom the property was assessed and who paid the taxes on the property;

(5) whether the grant was made for a specific purpose;

(6) whether the grant is made “in perpetuity” or “forever;” and,

(7) how the parties to the conveyance, or their heirs and assigns, have treated the property.[viii]

The court of appeal found that the parties only intended to reserve a servitude for a canal and a public road on the west and south sides of the property.  It noted that, had the vendor intended to reserve the fee title to these strips of land, the term ‘right of way’ would not have been used, and the dimensions of the property so reserved would have been described with exactness.  Moreover, the court noted that the taxes, since 1918, were continuously paid by the Heberts, and that such property was not “less and excepted” from mineral leases granted by the Heberts to Sweet Lake as lessee, all indicating that Sweet Lake had rights as a right of way holder, and not fee owner, over the strips of land concerned in the suit.

Conversely, in Conway v. Crowell Land & Mineral Corp., 635 So.2d 544, 93-1158 (La. App. 3 Cir. 4/6/94), the appeals court held that a deed to a railroad which included the following language was a transfer of full ownership rather than a right of way:

A Right-of-Way, for railroad purposes, One Hundred Feet Wide, over and across the North-Half of the North-West Quarter, Section Thirteen, Township One, South of Range Two, West of the Louisiana Meridian, in the Parish of Rapides, Louisiana-the said Right-of-Way to be located as now staked out by the engineer, and entering the North-West Quarter of North-West Quarter of Section from the North, and proceeding in a South-Easterly direction through the said North West Quarter of the North-West Quarter, and entering the North-East Quarter of the North-West Quarter from the West and proceeding in a Southeasterly direction through the said North-East Quarter of the North-West Quarter, and going out of the same on the South side.

In applying the seven factors, the court noted that in 1913, the transfer of a 20 acre tract of land, along with the payment of five hundred dollars ($500.00) cash for a 100 foot wide railroad strip constituted substantial consideration, and that the disputed strip was described with exactness, indicative of grantor’s intent to convey fee title to the railroad tram.  Further, that the railroad was paying the property taxes on the disputed strip, indicating a conveyance of fee title, and not a mere transfer of servitude.

Recently, in Woodland Properties, L.L.C. v. New Orleans Sewerage and Water Bd., 49 So.3d 443, 444, 2010-0331, 1 (La.App. 4 Cir., 2010), the Louisiana Fourth Circuit Court of Appeal was asked to analyze the language contained in an August 31, 1942 deed from Ernest B. Norman to the State of Louisiana and the Department of Highways (the “State”) entitled “Right of Way.”

In 1965, more than 20 years after execution of the 1942 deed and unbeknownst to Mr. Norman, the Sewerage and Water Board of New Orleans (“SWB”) applied for and obtained from the State a permit to construct a 16–inch underground asbestos cement waterline (the “waterline”) across the Norman property.  In 1994, the State quitclaimed the “right of way” back to Mr. Norman’s successors. 

In 2002, Woodland, the successor of Mr. Norman, entered into an option to sell the Norman property to the Johnsons for construction of a private residence.  A survey revealed the existence of the waterline.  SWB admitted that it never asked Mr. Norman or his successors-in-title for permission to construct the waterline but simply obtained a permit from the State to install the waterline under the property. Based on the problems presented by the waterline, the Johnsons withdrew from the option and cancelled the potential sale. Thereafter, Woodland proposed that SWB remove the waterline or purchase the Norman property, arguing that the Norman property was effectively removed from commerce due to the SWB waterline and SWB’s claimed maintenance of the servitude.  After SWB refused, Woodland filed suit.  SWB filed a motion for summary judgment, asserting that Mr. Norman transferred full ownership of the property to the State via the 1942 deed and that SWB was not required to obtain permission from Mr. Norman or his successors to construct the waterline.  The trial court granted SWB’s motion for summary judgment and Woodland appealed. 

The issue before the appeal court was whether the state had the authority to grant SWB the right to install the waterline on the property. The authority would depend on whether the deed to the State conveyed fee title or a mere right of way.  The appeals court, without much elaboration, held that there was no language in the deed that evidenced a transfer of full ownership, but rather a mere right of way over the Norman property, and thus, the State did not have the authority to grant SWB a permit to construct a waterline over the property without first obtaining permission from Mr. Norman.

C.       Was the Fare Fair, Did the Description Compare? Did Thou Use “Forever” In Your Purchase Endeavor?

The seven factor test appears to be a pretty straight forward one.  If the consideration for the transfer was near the fair market value of the property, then the factor supports a finding of fee simple title.  If, on the other hand, the consideration was low, the factor will support a finding of a mere right of way grant.  A deed that does not contain a specific property measurement will also reflect favorably upon the vendor, since ownership interests are difficult to enforce absent a proper description.[ix]  The fact that a transfer was made for a specific purpose (e.g., construction of railroad tracks or drainage canals) will also favor the vendor.  Further, while it may be difficult, due to the passage of time, to determine the intention of the original parties, the payment of taxes on the property in question and the language in subsequent sales which describe the property (e.g., whether they refer to “right of way” or mention fee title interest) may play a pivotal role in ascertaining what the parties believed their interests to be. 

D.       Parting Is Such Sweet Sorrow

As illustrated by the cases discussed herein, it is often the tiniest pieces of land that cause the biggest complications.  If the intentions of the contracting party are clear, and the words of a contract are express, then under Louisiana law, one must only look to the four corners of the instrument to determine its effects on the immovable property concerned therein.  Conversely, when the language in the instrument is ambiguous, Louisiana courts will often use the seven factor test to determine the intention of the parties.  

Ashley Green is a member of Gordon, Arata, McCollam, Duplantis & Eagan, LLC.  Ashley graduated from the Paul M. Hebert Law Center at Louisiana State University in 2004 as a member of the Order of the Coif, earning her J.D. and Bachelor of Civil Law Studies. During law school, Ashley was an Associate for the Louisiana Law Review and a student member of the Wex Malone Inns of Court.  Ashley's practice centers on commercial bankruptcy, oil and gas litigation and oil and gas property examination.  

Kate Bailey Labue is an associate in the Baton Rouge office of Gordon, Arata, McCollam, Duplantis & Eagan, LLC. Kate graduated from the Paul M. Hebert Law Center at Louisiana State University in 2004, earning her J.D. and Bachelor of Civil Law Studies. Kate’s practice centers on oil and gas property title examination, and regulatory issues as well as oil and gas litigation.