Louisiana First Circuit Applies Subsequent Purchaser Doctrine to Property Transfer Involving Closely Held LLC

The subsequent purchaser doctrine has been litigated extensively in Louisiana legacy cases involving claims for oilfield remediation.  The doctrine provides that a current landowner has no standing to bring a lawsuit for property damage that occurred prior to its acquisition absent a valid assignment from the prior landowner of the personal right to sue.  However, until now, no appellate court had addressed whether the doctrine barred a claim brought by a closely held or family-owned company who acquired the property in an intra-family transfer.  In Louisiana Wetlands, LLC v. Energen Resources Corporation, 2021-0290 (La. App. 1 Cir. 10/4/21), 2021 WL 4548529, —So. 3d—, the Louisiana First Circuit answered this question in the affirmative, holding that the subsequent purchaser doctrine applies to property transfers from family members to a company which they also own.

Louisiana Wetlands involved a 300-acre tract of land in Franklin Louisiana that had been owned by the family of James J. Bailey, III and passed down to various individual family members through successions for over a century.  In 2009, several of the Bailey family members formed New 90, LLC to manage this and other family-owned property.  After creating New 90, the individual Bailey family owners of the property executed an Act of Transfer on March 20, 2009 that transferred their interests in the property to New 90 in exchange for membership interests in the LLC.

Over seven years later, New 90 and another plaintiff-landowner sued various oil and gas companies for contamination to the property based on historical exploration and production activities dating back to the 1940s.  The defendants moved for summary judgment against New 90, claiming it was barred under the subsequent purchaser doctrine from suing for alleged damage to the property that occurred before New 90 acquired it in 2009.  The trial court agreed and dismissed all of New 90’s claims.

On appeal, New 90 argued that the subsequent purchaser doctrine applies only to transactions involving an arm’s-length sale of property, not to transfers of property from family members to an LLC in exchange for an ownership interest in the company.  The First Circuit resolved this issue by turning to the “comprehensive analysis” of Louisiana property law and the subsequent purchaser doctrine from Eagle Pipe and Supply, Inc. v. Amerada Hess Corp., 2010-2267 (La. 10/25/11), 79 So. 3d 246.  There, the Louisiana Supreme Court held that that the right to sue for pre-acquisition property damage is a personal right that belongs to the person who owned the property when the damage occurred, and this personal right does not transfer to a subsequent owner absent an express assignment or subrogation of that right from the previous owner.  Following Eagle Pipe, the First Circuit found that the subsequent purchaser doctrine applies to New 90’s scenario and held that “it is immaterial how property is transferred to a particular successor.  If the transferring instrument does not contain an explicit assignment of the personal right to sue for damages to the property, the right remains with the transferor.”  Finally, the First Circuit found that the 2009 Act of Transfer did not expressly or specifically assign the right to sue for pre-acquisition damages to New 90 because the Act did not mention either the personal right to sue for pre-acquisition damages, the right to seek restoration of the property, or any of the mineral leases that previously covered the property.

In sum, Eagle Pipe and Louisiana Wetlands firmly establish that the subsequent purchaser doctrine applies to all property transfers by particular title.

For more information about this article or related issues, please contact attorneys Kelly Becker (kbbecker@liskow.com) or Mark Deethardt (mrdeethardt@liskow.com).