Blogs

In Waterfowl Limited Liability Co. v. United States, No. 05-30219 (5th Cir. Dec. 12, 2006), the United States Court of Appeals for the Fifth Circuit granted the petition for panel rehearing, withdrew its earlier panel opinion, and held that Louisiana law did not apply to a settlement agreement that arose out of earlier litigation over mineral servitudes.  

Owners of mineral servitudes in Louisiana sued the United States — who claimed a share of the royalties under the earlier settlement agreement — asking the district court to declare that the United States’ mineral servitudes had prescribed under Louisiana law as a result of the lack of qualifying production for a period in excess of ten years.  The district court agreed.  In its original panel opinion, the Fifth Circuit also agreed. On rehearing, however, the Fifth Circuit reversed its original panel opinion and the district court. 

Relying on United States v. Little Lake Misere Land Co., Inc., 412 U.S. 580 (1973), the Fifth Circuit found that “when a land acquisition by the United States arises from and bears heavily on a federal regulatory program, state law cannot, of its own force, govern the acquisition.  Instead, federal law must provide the rule of decision.”  Because the United States had purchased the land to include in the Lacassine National Wildlife Refuge pursuant to the Migratory Bird Conservation Act, 16 U.S.C. § 715, et seq.,  the court found that the two-tiered inquiry established by the United States Supreme Court in Little Lake Misere controlled.

First, the court had to determine whether federal law controlled or whether state law applied of its own force.  Here, the court found that the United States acquired its interest pursuant to a federal regulatory program. 

Second, the court had to determine the content of federal law, i.e., whether to adopt Louisiana law as the federal rule of decision even though it did not apply of its own force.  The court rejected Louisiana law, finding that the parties had bargained for the settlement agreement with the understanding that Louisiana law would not apply to the United States’ mineral interest.

A deed reserving a mineral servitude for a period of ten years does not create a ten-year fixed servitude, but instead re-affirms the statutory ten-year prescription of nonuse applicable to mineral servitudes established in article 27 of the Louisiana Mineral Code. Thus, the right did not expire after the passage of ten years, but was kept alive by mineral production. In St. Mary Operating Company v. Lester Joseph Champagne, 06-984 (La. App. 3 Cir. 12/06/06), 2006 La. App. LEXIS 2750, the Louisiana court of appeal determined that a reservation “all of the minerals underlying or which may be produced from the above described tracts for a period of ten years” was a mineral servitude, not a mineral royalty, and that the servitude was subject to the statutory prescriptive period.

St. Mary Operating Company filed a concursus proceeding to determine to determine the proper recipient of royalties from an oil well in Vermilion Parish, Louisiana. The two groups of competing defendants were the buyers and the sellers of the land. The deed of sale included this clause: “Vendors reserve unto themselves all of the minerals underlying or which may be produced from the above described tracts for a period of ten years, this being a reservation of royalties, executive rights, bonuses, delay rentals, and all other mineral rights whatsoever.”

Because this language does not reserve surface rights in favor of the sellers, the court noted that the language would seem to create a mineral royalty rather than a mineral servitude. However, the sellers granted a mineral lease that conveyed surface rights to the lessee. The court found that the right created by the parties in the deed was a mineral servitude, because the owner of a mineral royalty could not have granted such lease rights.

The court next asked whether the language of the deed created a fixed, ten-year term, not subject to prescription, or whether it indicated the parties’ adoption of the regular ten-year prescriptive period, which is subject to interruption. Finding that all mineral servitudes created in Louisiana are subject to the rules of prescription, and given that the parties did not specify in the deed that the reserved ten-year period was for a fixed term and was not subject to prescription, the court found it to be a servitude. Thus, the sellers’ rights had not expired at the end of ten years, but instead had been maintained by mineral production.

On February 13, the Texas Supreme Court will hear arguments in a case involving important issues to the Texas oil and gas industry, including whether or not Texas recognizes an independent private cause of action for waste based on violations of Texas conservation laws and whether an oil and gas lessee commits waste by plugging abandoned wells with minerals remaining in the reservoir. The Court will also hear arguments on the applicability of the discovery rule and fraudulent concealment to claims by oil and gas lessors.

Liskow & Lewis attorney Butch Marseglia submitted an amicus curiae brief on behalf of The Texas Oil & Gas Association. For a copy of TxOGA’s brief, click on the following link Amicus Curiae Brief of TXOGA – Received: 10/16/2006 .

The Miesch case, set for argument on February 13, is one of two related cases decided by the Corpus Christi Court of Appeals last year.

A.   Emerald Oil & Gas v. Exxon Corp., No. 13-99-757, 2005 WL 167051 (Tex.App.—Corpus Christi Jan. 27, 2005, pet. filed No. 05-0729; Exxon Corporation and Exxon Texas, Inc. v. Emerald Oil & Gas Company, L.P., In the Supreme Court of Texas)

Emerald, a subsequent lessee of Exxon, sued Exxon for wrongful conduct “in the development and abandonment of oil and gas wells in the Mary Ellen O’Connor Field.” Specifically, Emerald asserted claims for (1) breach of regulatory duty to plug a well properly; (2) breach of regulatory duty to refrain from committing waste; (3) negligence per se based on alleged violations of various Natural Resources Code sections and Railroad Commission regulations; (4) tortious interference with economic opportunity; (5) fraud; and (6) negligent misrepresentation. The royalty owners intervened and asserted claims against Exxon for, among others, common law waste, statutory waste, negligence per se, tortious interference, and failure to develop. The trial court granted summary judgment for Exxon on Emerald’s first three claims and severed the remaining claims, and Emerald appealed the summary judgment. Emerald’s remaining claims were tried with those of the royalty owners (see next section).

The Corpus Christi court of appeals reversed the summary judgment and remanded the case to the trial court. Exxon’s Petition for Review was filed September 9, 2005, arguing that:

1.  Emerald lacks standing, as subsequent acquirer of the leases, absent an express assignment of specific causes of action;
2.  Natural Resources Code § 85.321 does not create any new private causes of action; and
3.  Violations of the Natural Resources Code do not support a claim of negligence per se.

For copies of the Supreme Court briefs currently on file in Emerald case, click on the following link http://www.supreme.courts.state.tx.us/ebriefs/files/20050729.htm.

B. Exxon Corp. v. Miesch, 180 S.W.3d 299 (Tex.App.—Corpus Christi 2005, pet. filed No. 05-1076; Exxon Corporation and Exxon Texas, Inc. v. Emerald Oil & Gas Company, L.P., and Laurie T. Miesch; In the Supreme Court of Texas)

Emerald’s remaining claims, along with those of the royalty owners, were tried to a Jury, but the court directed a verdict in favor of Exxon on Emerald’s claims. On the remaining claims, the Jury found in favor of the royalty owners on all issues submitted. Thus, at the end of the day, Emerald took nothing from Exxon, but the Jury found:

1. Exxon committed waste on “property or production” in which the royalty owners “owned an interest”; 2. Exxon failed to act as a reasonably prudent operator in plugging the wells;
3. The royalty owners discovered, or in the exercise of due diligence should have discovered, the waste on January 24, 1995;
4. Exxon failed to comply with the development provisions in the lease;
5. Exxon fraudulently concealed its failure to develop; and
6. In February 1999 the royalty owners knew, or in the exercise of reasonable diligence should have known, that Exxon fraudulently concealed its failure to develop.

The Jury awarded the royalty owners:

1. $5 million for (a) the cost to drill new wells, (b) the value of the minerals that could not be recovered, and (c) the loss of bonus payments;
2. $10 million in punitive damages; and
3. $3.6 million for Exxon’s breach of contract, as the amount the royalty owners “would have received for the minerals produced” had Exxon fully developed the leases, less (a) the costs of operation and production and (b) any royalty received from Emerald.

The Corpus Christi court of appeals affirmed the judgment in favor of the royalty owners and reversed the trial court’s directed verdict on Emerald’s causes of action for fraud, negligent misrepresentation, and tortious interference. Exxon’s Brief argues that:

1. A claim that an operator’s method of plugging an abandoned well made reentry to produce anr remaining hydrocarbons more difficult is not the type of claim to which the discovery rule applies;
2. The Discovery Rule, if applicable, cannot save the stale tort claims because the royalty owners and Emerald knew about facts giving rise to their claims;
3. The court of appeals’ “rescue” of the breach of lease coalm violates the Court’s fraudulent concealment precedent by suspending limitations until all the specifics of the claim are revealed;
4. The court of appeals’ holding regarding what constitutes evidence of fraudulent intent creates ad limitless class of plaintiffs to whom persons who file public records may be liable;
5. Without regard to limitations, the “waste” claim fails because tort liability may not be imposed when the allegedly wrongful conduct is the subject of the parties’ contract;
6. By upholding the waste claim, the court of appeals has created a new common law cause of action for waste, never before recognized in Texas oil and gas law;;
7. The court of appeals’ opinion creates a new statutory private cause of action for waste under section 85.321 of the Natural Resources Code;
8. Even if it were not time-barred, the breach of lease claim fails as a matter of law because Exxon complied with the express terms of the leases’ development clauses;
9. The definition of “waste” submitted to the Jury is fatally defectiv;
10. The court of appeals relied on legally insufficient evidence to uphold the multimillion dollar damages judgment; and
11. Even if not time-barred, Emerald’s negligent misrepresentation and tortious interference claims fail as a matter of law because no evidence supports critical elements of each claim.

For copies of the Supreme Court briefs currently on file in the Miesch case, click on the following link http://www.supreme.courts.state.tx.us/ebriefs/files/20051076.htm.

Contributed by  Andrew Wooley

In Via Net v. TIG Insurance Co., the Supreme Court of Texas recently concluded it was not reasonable for a party to believe it was an additional insured under another party’s commercial general liability policy, based only on a certificate of insurance provided by the other party’s insurance broker. After noting that certificates of insurance generally do nothing more than acknowledge the existence of a policy and its general terms, and do not specify “the numerous limitations and exclusions that often encumber such policies,” the court stated “those who take such certificates at face value do so at their own risk.”

While the specific legal issue in Via Net was whether a party’s reliance on a certificate of insurance provided by another party’s insurance broker was sufficiently reasonable to toll the statute of limitations until the aggrieved party learned it was not, in fact, an additional insured, the lesson in the case for those who intend and expect to be named as an additional insured under someone else’s insurance policy is to require verification of that beyond a mere certificate of insurance, e.g., copies of the policy and the endorsement adding the party as an additional insured. The opinion in Via Net is available on Westlaw at 2006 WL 3759389 and is also available on the Texas Supreme Court’s web site at http://www.supreme.courts.state.tx.us/historical/2006/dec/050785.htm.

In the continuing dispute between federal offshore lessees and the Department of the Interior over missing price threshold provisions in 1998 and 1999 federal oil and gas leases, MMS announced today that it has signed agreements with BP, ConocoPhillips, Marathon Oil Company, Shell, and Walter Oil and Gas Corporation.