March 2017 Legal Update by Brett S. Venn / Jones Walker
LOUISIANA LEGAL UPDATE
Brett S. Venn
Jones Walker LLP
The Louisiana Court of Appeal, Second Circuit, recently issued opinions analyzing whether the unintended omission of a mineral rights reservations from an act transferring ownership of immovable property can be corrected by a notary’s affidavit of correction, and whether the running of prescription of nonuse on a mineral servitude can be interrupted by the good faith operations of an operator with no legal relationship to the servitude owners. The decisions are discussed below.
Notarial Affidavit Cannot Correct Omission of Mineral Rights Reservation from Act of Exchange.
In Petro-Chem Operating Company, Inc. v. Flat River Farms, L.L.C., No. 51,212 (La. App. 2 Cir. 3/1/17), 2017 WL 786868, the issues considered by the Court included whether the omission of a mineral rights reservation from an act transferring immovable property interests can be corrected by a notary’s affidavit of correction pursuant to La. R.S. 35:2.1. The statute allows for correction of “clerical errors” in acts transferring mineral rights by an affidavit of correction executed by the notary who notarized the execution of the act. The Court concluded that omissions of mineral rights reservation from acts of exchange are not “clerical errors” and cannot be corrected by notarial affidavits.
In 2004, Larry Lott sold Raymond J. Lasseigne a 63-acre tract of land (“Tract A”) within a mineral servitude in Bossier Parish, Louisiana. Later, a defect in the 2004 act of sale from Lott to Lasseigne was discovered. In order to correct the defect, Lott and Lasseigne exchanged Tract A with another piece of property (“Tract B”) owned by Lott in the mineral servitude. This was accomplished by an act of exchange recorded in the conveyance records of Bossier Parish on December 17, 2007.
As originally recorded in the conveyance records, there was no reservation of mineral rights in the act of exchange between Lott and Lasseigne. Therefore, as a result of the exchange, Lott acquired Tract A with both its surface and mineral rights, and Lasseigne acquired Tract B with both its surface and mineral rights.
About three months later, on March 26, 2008, an affidavit of correction executed by the notary who witnessed the act of exchange was recorded in the conveyance records. The affidavit stated that the intent of Lott and Lasseigne in executing the act of exchange was for Lott to reserve the mineral rights to Tract B.
Petro-Chem Operating Company, Inc., subsequently filed a concursus action seeking to resolve competing ownership interests in minerals for land on which it was operating. In the lawsuit, Lasseigne filed a motion for summary judgment seeking a declaration that the affidavit of correction is invalid and requesting that it be stricken from the conveyance records. The district court agreed that the act of exchange was invalid and the omission of the mineral reservation could not be corrected a notarial affidavit of correction.
Relevant Statute and Civil and Mineral Code Articles:
Louisiana R.S. 35:2.1 (entitled “Affidavit of Corrections”) states, in pertinent part:
A. (1) 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 any of the following:
(a) The person who was the notary or one of the notaries before whom the act was passed.
(b) The notary who actually prepared the act containing the error.
The Mineral Code, at La. R.S. 31:18, provides that a mineral right is an incorporeal immovable.
Article 1839 of the Civil Code governs transfers of immovable property and states in key part: “A transfer of immovable property must be made by authentic act or by act under private signature.”
Article 1833 of the Civil Code defines an “authentic act” as a writing executed before a notary public or other officer authorized to perform that function, in the presence of two witnesses, and signed by each party who executed it, by each witness, and by each notary public before whom it was executed.
The Court explained that the act of exchange between Lott and Lasseigne was completed as an authentic act before a notary and signed by both parties and two witnesses.
The Court reasoned that it is clear from the language of La. R.S. 35:2.1 that a notarial affidavit of correction may correct only a “clerical error.” By statutory definition, the Court explained, a clear error is an error in writing or copying a document.
A reservation of mineral rights is a substantive change, the Court continued, because the addition of a reservation of mineral rights would change the effect of the authentic act in regard to the real rights held by Lott and Lasseigne. Because reservation of real rights is a substantive issue which implicates the thought process and intention of the parties to the transaction, a notarial affidavit of correction cannot be used to correct the omission of a mineral rights reservation in a sale of land.
For these reasons, the Court held that the district court properly ruled that the notary’s affidavit of correction could not correct the omission of the mineral reservation from the act of exchange.
Summary of Decision:
In Louisiana, a reservation of mineral rights incorrectly omitted from an act transferring ownership of land cannot be corrected by an affidavit of correction executed by the notary who notarized the execution of the act of transfer.
Good Faith Operations by an Operator with No Legal Relationship to Servitude Owners Can Interrupt the Running of Prescription of Nonuse Against the Servitude.
In Smith v. Andrews, No. 51,186 (La. App. 2 Cir. 2/15/17), 2017 WL 603992, the Court considered issues including whether mineral servitude prescribed due to a lack of good faith operations by on the servitude for a period ten years. The Court of Appeal held that good faith operations are sufficient to interrupt prescription even where the operations are by an operator with no legal relationship to the servitude owners.
B.J. and Betty Ruth Andrews own several tracts of land in DeSoto Parish, Louisiana. The Andrews’ land is burdened with one mineral servitude held by Ameritas Life Insurance Corporation (“Ameritas”), and a second mineral servitude held by heirs of Sara R. Smith (the “Smith Heirs”).
Leases on the servitudes were originally executed by Ameritas’ predecessor and Sara R. Smith in 1966. Four producing wells were drilled on the leases.
Ultimately, the leases were assigned to Terry Dale Jordan effective November 1, 2001. However, the leases had lapsed prior to the assignment. Thus, Jordan did not have a valid lease with Ameritas or the Smith Heirs. No other legal relationship (such as agency or co-ownership) existed between Jordan and the servitude owners. Also on November 1, 2001, the operator of the wells was changed to Jordan.
In the lawsuit, the Andrews claimed that the mineral servitudes of the Smith Heirs and Ameritas had prescribed due to ten years of nonuse between 1997 and 2007. The Andrews claimed to be the owners of the mineral rights.
During the trial, the testimony of Jordan established that, in 2001 and 2002, Jordan attempted to regain production from the last producing well. He went to the well every day for a few days and then started going every other day. Each time he went to the site, the well was operational and was pumping oil. He opened a bleeder valve and observed oil coming out of the well. One day, he saw the well pumping and obtained a sample of pure oil in an old bottle. Jordan testified that he able to bottom bump the well and get it pumping oil again, although the well did not operate for very long. Further, electric company records show that the well used electricity from November 2001 through January 14, 2002.
Jordan also testified that he understood that the wells were subject to a lease and that any production obtained would benefit the Smith Heirs and Ameritas.
The district court concluded that Jordan was acting on behalf of the Smith Heirs and Ameritas in his attempts to regain production from the well, and his use of the servitude was for their benefit as servitude owners. As a result, the servitudes had not prescribed and the Andrews did not own the mineral rights.
Relevant Mineral Code Articles:
Article 27 of the Mineral Code provides that a mineral servitude is extinguished by prescription for nonuse if not exercised for a period of ten years. La. R.S. 31:27(1).
Article 29 of the Mineral Code, La. R.S. 31:29, defines provides that the prescription of nonuse running against a servitude is interrupted by “good faith operations for the discovery and production of minerals,” as defined by the article.
Article 42 of the Mineral Code, La. R.S. 31:42, states:
Except as provided in Articles 44 through 52, use of a mineral servitude must be by the owner of the servitude, his representative or employee, or some other person acting on his behalf.
Article 43 of the Mineral Code, La. R.S. 31:43, provides:
A person is acting on behalf of the servitude owner only when there is a legal relationship between him and the servitude owner, such as co-ownership or agency, or when there is clear and convincing evidence that he intended to act for the servitude owner. Silence or inaction by the servitude owner will not suffice to establish that a person is acting on behalf of the servitude owner.
The Andrews argued that Jordan's actions from 2001 through 2002 were not sufficient to interrupt prescription on the servitudes because he had no legal relationship with the servitude owners and he did not act with the intent to benefit them.
The Court reasoned that La. R.S. 31:43 provides that a person may act on behalf of the servitude owner to interrupt prescription when there is clear and convincing evidence that he intended to act for the servitude owner. Based upon the record, the Court found that such a showing was made.
The Court found that Jordan was aware that both the Smith Heirs and Ameritas had rights to any production that might be obtained from the well and that he was acting to make money for himself and them. Jordan's unrebutted testimony was clear that any actions he took were done with the intent to act not only for himself, but also for the servitude owners.
The Court concluded that Jordan’s attempts to regain production from the well were on behalf of the Smith Heirs and Ameritas and for their benefit.
The Court held that the district court properly determined Jordan’s activities in 2001 and 2002 interrupted the running of prescription of nonuse against the servitudes despite Jordan not having a legal relationship with the Smith Heirs and Ameritas.
Summary of Decision:
The running of prescription of nonuse on a mineral servitude can be interrupted by good faith operations for the discovery and production of minerals conducted by a person with no legal relationship to the servitude owners.
Brett Venn is a partner in Jones Walker LLP’s Business & Commercial Litigation Practice Group and practices from the firm's New Orleans office. His practice focuses on a variety of business and commercial disputes. He has recently represented companies in disputes under the Louisiana Oil Well Lien Act, in construction lien and contract disputes, and in litigation arising out of the Bayou Corne sinkhole in Assumption Parish, Louisiana. He also has experience in investigations involving allegations of commercial kickbacks and conflicts of interest. He was named a “Rising Star” in the area of Business Litigation in the 2016 and 2017 editions of Louisiana Super Lawyers.
Brett S. Venn
201 St. Charles Ave, Ste 5100