The Subsequent Purchaser Doctrine is a judicially created limitation on the rights of a current landowner to sue for pre-acquisition damages. For over 160 years, Louisiana courts have held that a current landowner has no right of action to sue for damages to his/her property occurring prior to the date of sale in the absence of an express assignment of that right. In environmental contamination disputes, appellate courts were divided on whether the doctrine should apply to cases involving non-apparent or subsurface property damage.

In a recent 4/3 decision, a majority of the Justices of the Louisiana Supreme Court rejected the notion that property damage must be overt, and held that a landowner has no right to sue for non-apparent damages to land inflicted before the act of sale in the absence of an express assignment of, or subrogation to, that right. Eagle Pipe and Supply, Inc. v. Amerada Hess Corporation, 2010-2267 (La. 10/25/2011) –So.3d --. In reaching this decision, the majority acknowledged 160 years of jurisprudence constante regarding the subsequent purchaser rule and found that the rationale should also extend to the situation where damage to the property is not apparent.

In reaching this decision, the Louisiana Supreme Court also rejected various theories advanced by Eagle Pipe, most notably of which was Eagle Pipe’s continuing tort theory. According to the Court, the presence of alleged contamination on Eagle Pipe’s property was not caused by “overt, persistent and ongoing acts,” but was simply a continuing ill effect from the original tortious acts. As such, it was not a continuing tort and could not give rise to a separate tort claim under that theory.

This decision resolves any dispute among the appellate courts and explicitly limits the rights of current landowners to bring suit for environmental harm inflicted prior to the date they acquired the property, regardless of whether the purchaser could have known of the contamination. Such landowners may still seek claims against prior owners and are further permitted to seek environmental remediation, but private actions and damages have been severely abrogated by the Court’s ruling. Moreover, in rejecting the continuing tort theory, the Court refused to allow private claims for environmental harm to exist in perpetuity, providing greater certainty to industry with respect to tort liabilities.

Notably, the Court’s decision created a sharp divide among the justices which continues to persist. Justice Clark, who authored the majority opinion, and Justice Weimer, who authored the dissent have both provided additional written opinions, days after the original opinion was released. As this dispute continues, it is important to recognize a number of similar cases currently pending before the Court, including two arising from oil and gas exploration and production activities performed pursuant to mineral leases. The Court will continue to face such sharp divisions in ruling on these matters and the issue is far from final resolution.
 

Effective today, October 20, 2011, new permitting and disclosure requirements apply to hydraulic fracturing operations in Louisiana. Known as “fracking” in the oil and gas industry, hydraulic fracturing refers to the process of injecting fluid into tight shale or sandstone formations, which creates fractures in the rock through which oil and gas may travel into the wellbore. When combined with horizontal drilling, fracking allows producers to capture oil and gas reserves that were once thought to be out-of-reach.

Pursuant to the newly-implemented amendment to Subpart I of LAC 43:XIX (Statewide Order 29-B), fracking operators must now apply for and obtain a specific permit for “hydraulic fracture stimulation” from the Louisiana Department of Natural Resources’ Office of Conservation before utilizing pressurized fluids to fracture any formation for the purpose of improving its ability to produce hydrocarbons. After obtaining the requisite permit and conducting its fracking operations, the operator must be prepared to publicly disclose (1) the types and volumes of base fluid used during fracking; (2) a detailed list of all additives used in the fluid and the name of the supplier for each type of additive; and (3) a list and concentration of any chemicals contained in the fracking fluid that are regulated by the Occupational Safety and Health Administration (OSHA) and reported on Materials Safety Data Sheets (MSDS). The lone exception to these disclosure requirements permits an operator to withhold trade secrets, but the regulations still require the operator to disclose pertinent chemical characteristics of even proprietary constituents used in fracking operations.

To comply with these disclosure requirements, the operator must utilize the Office of Conservation’s new WH-1 Form to disclose the information about the base fluids (discussed above), together with detailed information about the identities and volumes of water supplies used during each phase of fracking operations. In lieu of submitting the WH-1 Form directly to the Office of Conservation, the operator may elect to satisfy its chemical reporting obligations by publishing the required information to an online database that makes the information available to the public free of charge. If utilizing the online option, the operator must also furnish a written statement to the Office of Conservation certifying that all required information has been published in an online registry. FracFocus is one online database specifically endorsed by the new regulation, but the disclosure requirements can also be met by publishing the required information to any other “similar registry.” It is anticipated that the option to satisfy Louisiana’s new disclosure requirements by publishing information to FracFocus will be heavily utilized, as many oil and gas companies have already become accustomed to using this registry to comply with other states’ disclosure regulations.
 

In a recent decision, the Louisiana Second Circuit Court of Appeals upheld the application of the longstanding subsequent purchaser doctrine to an oilfield legacy case.  The decision Wagoner v. Chevron U.S.A. Inc., et. al., No. 10-45507 (La. 2. Cir. 2010) affirmed the legal principle that the right to recover for property damages is a personal right that does not pass to subsequent purchasers of the property.  According to the Second Circuit, this right is a personal right even when the harm is subsurface environmental contamination.

In reaching its decision, the Second Circuit rejected multiple theories advanced by the plaintiffs. Most significantly, the Second Circuit rejected plaintiffs’ contention that the existence of a mineral lease created a real obligation to restore the leased premises to its original condition.

The right to damages conferred by a lease, whether arising under a mineral lease or a predial lease, is a personal right, not a property right; and, as a personal right, it does not pass to the new owners of the land when there is no specific conveyance of that right in the instrument of sale.

The Second Circuit’s decision creates a further divide among the Circuit Courts of Appeal on the subsequent purchaser doctrine. Plaintiffs have sought Writs of Supervisory Review from the Louisiana Supreme Court and this is one of several, similar decisions currently on review.
 

Electronic Discovery, or “E-Discovery”, is not considered the “novel issue” it once was. However, E-Discovery still presents problems that litigants and courts struggle with. Below is a summary of recent Louisiana Federal Court opinions dealing with the issues surrounding E-Discovery.

In Frees, Inc. v. McMillian, 2007 WL 184889 (W.D. La. Jan. 22, 2007), the Western District of Louisiana granted the plaintiff’s motion to compel. In an unfair competition and trade secret theft action, the plaintiff claimed that the defendant, a former employee, had stolen various data files. Plaintiff had unsuccessfully requested production of defendant’s laptop and desktop. The Court granted the motion to compel the defendant to produce these two items because they were the most likely places that the data files would be located. The Court did institute protective measures so as to prevent the disclosure of any irrelevant or personal information.
 

In Green v. Fluor Corp., 2009 WL 1668376 (M.D. La. June 11, 2009), a case in the Middle District of Louisiana, the defendant sought access to the plaintiff’s phone and e-mail system to obtain the original version of a photograph the plaintiff had given to the defendant as part of discovery. The defendant claimed the produced photograph taken from a phone was of low quality and wanted access to the plaintiff’s phone and e-mail to obtain a clearer picture. The Court denied the motion because the defendant failed to ask for the particular form of the discovery in regards to the picture and therefore had to settle with what the plaintiff had produced.

In Marketfare Annunciation, LLC v. United Fire & Casualty Ins. Co., 2007 WL 3273440 (E.D. La. Nov. 5, 2007), the Eastern District of Louisiana dealt with a spoliation issue involving electronic evidence in a claim that arose due to Hurricane Katrina. The defendant failed to produce certain e-mails even after the plaintiff put the defendants on notice to preserve them. However, the plaintiff waited until the eve of the close of discovery to file sanctions and therefore the court denied the request.

In Thomas v. IEM, 2008 WL 695230 (M.D. La. Mar. 12, 2008), the Middle District of Louisiana dealt with a civil rights violation. The plaintiff served a Rule 45 subpoena on the defendant in order to obtain access to nine named individuals’ e-mail boxes. The Court held this was an attempt to circumvent discovery deadlines under Rules 26 and 34 and therefore did not grant the request.

In Canon USA, Inc. v. SAM, Inc., 2008 WL 2522087 (E.D. La. June 20, 2008), the Eastern District of Louisiana granted a motion to compel electronically stored data that the defendant had at his home in Florida. After Hurricane Katrina, defendant moved his computer to Florida but when discovery requests were made he did not search the computer to provide complete answers to interrogatories. The court held that this “lackadaisical” treatment of discovery was unacceptable and held that any undeleted information on the computer was discoverable. The Court ordered the defendant to obtain the services of a “forensic computer specialist” and fully respond to the discovery request.

In re Riverside Healthcare, Inc., 2008 WL 4183609 (M.D. La. Sept. 11, 2008), a case in the Middle District of Louisiana, a bankruptcy liquidating supervisor accused a creditor of destroying evidence and sought the adverse presumption that follows spoliation. The creditor had deleted e-mails that the liquidating supervisor considered necessary evidence. However, the court held that spoliation requires bad faith and here there was no bad faith due to the fact that the creditor destroyed e-mails automatically every sixty to ninety days.

In Johnson v. Big Lots Stores, Inc., 2008 WL 2191357 (E.D. La. May 7, 2008), the Eastern District of Louisiana ruled that a plaintiff could not take another deposition of the defendant’s representatives regarding how the defendants preserved and collected electronic data. The Court stated that since the plaintiffs failed to list “e-Discovery” as an issue at the original deposition and since they waited until two days before the close of discovery, the motion to compel the second deposition was denied. The Court also stated that “e-discovery” matters are no longer the novel issues that they once were with the advent of the Internet and wide expansion of computerized data collection and the plaintiffs had no legitimate excuse as to why they failed to make issue of “e-discovery” at the original deposition.

In Hoover v. Fla. Hydro, Inc., 2008 WL 4467661 (E.D. La. Oct. 1, 2008), the Eastern District of Louisiana allowed discovery of two non-parties’ computers. In this breach of contract claim, the defendant sought the electronic data from the plaintiff’s mother and a friend who helped him in his business. The Court held that this would not create an undue burden on the mother because the non-party was involved in the plaintiff’s business and would have relevant information stored on her computer. The subpoena was quashed as to the friend because he had adequately answered the discovery request.

In May v. Fedex Freight Southeast, Inc., et al., 2009 WL 1605211 (M.D. La. June 8, 2009), a Middle District of Louisiana case, the plaintiff brought suit for sexual harassment while she was employed by the defendant. Plaintiff sought “any and all e-mails referencing, as well as those sent to and from, plaintiff and [the accused sexual harasser].” The defendant claimed that this was not possible because the e-mail was inaccessibly archived and unsorted. The Court held that the plaintiff and defendant had to meet with the defendant’s IT department to discuss the “burden and expense of producing the e-mails requested by plaintiff.” If then there was still no agreement, the plaintiff was urged to reassert her motion to compel.
 

The July 20, 2010 Louisiana Register contained a notice from the Office of Conservation, Louisiana Department of Natural Resources that purported to promulgate rules amending Statewide Order 29-B to add a new Chapter 8 on procedures for evaluation and remediation of groundwater at E&P sites. Conservation’s Web site on July 20, 2010 contained a “final” version of the SERP Manual that was part of the proposed rules.  In a memorandum dated July 20, 2010 sent to interested parties, the Commissioner of Conservation said the July 20 notice on these proposed rules had been “unintentionally and incorrectly published” in the Louisiana Register as a final rule.  The memorandum states that Conservation does not consider the proposed rules “to be final or in effect at this time.”  Look for future information on these proposed rules.

In 2006, the Louisiana Legislature enacted Louisiana Revised Statute 30:29 (“Act 312”) to provide a procedure for judicial resolution of claims for environmental damage to property. The provisions of Act 312 are applicable whenever there is “any litigation or pleading making a judicial demand arising from or alleging environmental damage” involving “contamination resulting from activities associated with oilfield sites or exploration and production (“E&P”) sites,” regardless of whether claims for remediation arise under the Louisiana Mineral Code or Civil Code. La. R.S. 30:29(I)(1).

Act 312 defines an oilfield/E&P site as a location on which oil or gas exploration, development, or production “activities” have occurred. Such activities would include the use of wells, equipment, tanks, flowlines or impoundments in the drilling, workover, production, primary separation, disposal, transportation or storage of E&P wastes, crude oil and natural gas prior to a custody transfer or sales point.

Using generally accepted oil and gas terminology, activities occurring in the “upstream” oil and gas sector are within the procedures set forth in Act 312, while activities taking place in the “midstream” and “downstream” sectors would likely not meet the criteria set forth in Act 312. It appears that the Louisiana legislature intended Act 312 to apply only to contamination resulting from activities that occur during the search for and recovery of oil, gas and minerals from the earth and its related processing, transportation and storage prior to a transfer of custody or sale. Contamination resulting from any subsequent processing, transportation, storage, or refining activities after said transfer would likely not be covered by Act 312.
 

On Friday, April 9, 2010, the Louisiana Supreme Court (1) reversed the Third Circuit Court of Appeal’s decision in Cimarex Energy Co. v. Mauboules (2), in which the Circuit Court held that

(1) a royalty interest vendors’ oral assertion to a mineral lessee that the royalty interest vendee fraudulently inserted a prescription interruption provision in the royalty deed, and that therefore the royalty interest had reverted back to the vendors, is not a reasonable basis for the mineral lessee to initiate a concursus proceeding to determine the ownership of royalty payments because the innocent third party purchaser of the royalty interests is protected by the public records doctrine; and

(2) the mineral lessee is liable not only for the royalties paid into the registry of the court, but also for an additional sum equal to double the amount of royalties paid into the registry of the court, as damages.

The Third Circuit decision represented a gross departure from well-established Louisiana law relating to concursus proceedings, upon which the oil and gas industry, and mineral royalty payors in particular, have long relied in order to avoid the risk of multiple liability and the vexation of multiple lawsuits, as well as to avoid a penalty for nonpayment of royalties pursuant to Mineral Code provisions allowing a penalty under certain circumstances.

The Supreme Court’s reversal of the Third Circuit is significant because it reaffirms over eighty-five (85) years of Louisiana legislation and jurisprudence which recognized concursus as a mechanism for a stakeholder faced with competing claims to funds to avoid multiple liability and a multiplicity of lawsuits. The Court granted the writ application primarily to review the lower courts’ ruling that the mineral lessee had no reasonable basis to invoke a concursus proceeding, and thereby unreasonably withheld royalty payment. Addressing that issue, the Court held that the concursus proceeding was properly invoked where (i) one group of claimants asserted that they held the subject royalty interests because a prescription interruption clause had been fraudulently inserted in a royalty deed, was therefore null, and the royalty interests had reverted to them; and (ii) another competing group of claimants claimed that regardless of the alleged fraud, they had purchased the royalty interests from the other claimant groups’ vendee in good faith, could rely upon the public record for the validity of their title, and therefore were protected innocent third-party purchasers. (3)

Specifically, the Court examined whether there were “competing claims,” and whether the mineral lessee was required to determine the merits of the competing claim prior to invoking the concursus. After considering the jurisprudential and legislative history of the concursus proceeding in Louisiana law, the Court noted that the purpose of a concursus is to (i) protect the stakeholder from multiple liability; and (ii) avoid a multiplicity of lawsuits. The Court also noted that in 1960 the Legislature broadened the application of the concursus proceeding by borrowing some of the flexible principles of federal interpleader. Most particularly, the Court recognized that the language of La. C.C.P. Art. 4562 provides that use of the concursus proceeding is allowed even if the stakeholder denies liability owed to one or all of the claimants:

Persons having competing or conflicting claims may be impleaded in a concursus proceeding even through the person against whom the claims are asserted denies liability in whole or in part to any or all of the claimants, and whether or not their claims, or the titles on which the claims depend, have a common origin, or are identical or independent of each other. La. C.C.P. Art. 4562 (emphasis added).

The Court rejected the argument that there was no true competing claim, noting that the above-quoted language in Article 4562 protects a stakeholder from having to determine at his peril, which claimant has the better claim. The Court further reasoned that there is no requirement in the Article that claims must be made in a specific format, or with any formality. Oral allegations of fraud were sufficient to constitute a competing claim to the royalty proceeds. Furthermore, in this case, the assertions made by the claimant group involved more than a mere possibility that a competing claim may be asserted.

The Court also held that the stakeholder had no duty to definitively determine whether the claimant group asserting fraud had any chance of success in pursuing its claim against the claimant group relying upon the public records doctrine and its status as an innocent third party purchaser. The use of concursus is not dependent on the merits of the adverse claim; and in almost all concursus proceedings, the claim of one of the parties will ultimately be found to be invalid.

The Court explained that the Third Circuit erred when it based its decision on the merits of the fraud claim, reasoning that the fraud claim could not defeat the protections of the public records doctrine. Moreover, the Third Circuit’s reliance on the public records doctrine was found to be misplaced. The public records doctrine is a negative doctrine because it does not create rights, but rather, denies the effect of certain rights unless they are recorded. Third persons are not allowed to rely on what is contained in the public records (in this case a prescription-interruption clause), but instead can rely on the absence from the public records of those interests that are required to be recorded. Because recordation of the mineral royalty deed is not the source of legal rights, the innocent third-party purchaser cannot simply rely on, and only look to, the public records doctrine to support its position that the fraud claim was not a competing claim for purposes of concursus. The question of whether the fraud claim might affect title certainly presented a legitimate basis for the stakeholder to fear that the innocent third-party purchaser’s position possibly might not be protected by the public records doctrine. Even though the general protections of the public records doctrine indicated that the claimant group alleging fraud had little chance of success, the Court declined to put the burden on the stakeholder to make that final legal determination. Such a determination is properly placed in the hands of the court.

Furthermore, the Court found that the Third Circuit erred because by focusing on the merits of the fraud claim, it focused only on the “multiple liability” purpose of concursus, and ignored the “vexatious litigation” purpose. Even assuming that the fraud claim is tenuous at best, requiring the stakeholder to pay still exposes it to the costs and risks of defending multiple suits. Thus, the Court found that the stakeholder was justified in its fear that it might be later faced with a suit brought by the fraud claimants, and its use of concursus to avoid such multiple litigation was proper.

Finally, the Supreme Court rejected any contention that the stakeholder invoked the concursus in bad faith (and violated the clean hands doctrine) (4) simply because it knew when it took the lease that the royalty interest vendors might claim fraud. Once the stakeholder was presented with a letter asserting a claim to the royalty interests and was advised by its attorney to suspend royalty payments and invoke a concursus, it was reasonable to do so. At that point, the stakeholder had more than a theoretical concern that the fraud claimants would make a claim to the royalty proceeds.

Because the Supreme Court determined that the invocation of the concursus proceeding was appropriate, and because the stakeholder timely responded to the third party innocent purchasers’ demand for payment of royalties, explaining that the royal interest vendors were asserting a claim to the royalty payment, it never reached the question of how to calculate the amount of any judgment for nonpayment of royalties pursuant to the Mineral Code, particularly, La. R.S. 31:212.23, which governs production payments and royalty payments to others than mineral lessors and provides in pertinent part:

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. La. R.S. 31:212.23(C) (emphasis added).

Appellate Court jurisprudence regarding the calculation of a royalty payee’s recovery under this provision is nonexistent, and the decisions interpreting other penalty provisions having similar language (5) are both unclear and inconsistent regarding whether a mineral royalty payee falling under this provision may be awarded no more than double the amount of royalty due as damages (double damages), or may be awarded as much as the amount of royalty due plus double the amount of royalty due as an additional (treble damages). Because the Supreme Court determined that the concursus proceeding had been appropriately invoked, this issue was rendered moot, and the industry is still without a definitive interpretation of La. R.S. 31:212.23(C) from the State’s highest court. (6)

The Court also did not address the question of whether for purposes of La. R.S. 31:212.23(A), the deposit of royalties into the registry of the court in a concursus proceeding, within thirty days of written notice by the royalty owner pursuant to La. R.S. 31:212.21, (7) constitutes “payment” of the royalties such that the royalty payee shall have no further claim with respect to those payments. Paragraph B of La. R.S. 31:212.23 provides:

If the obligor pays the royalties or production payment due plus the legal interest applicable from the date payment was due, the owner shall have no further claim with respect to those payments. La. R.S. 31:212.23(A) (emphasis added). (8)

Thus, the question of whether the stakeholder/mineral royalty payor is insulated from exposure to the penalty provision of La. R.S. 31:212.23, even if the concursus procedure is ultimately determined to have been improvidently invoked (and the funds and accrued interest ordered released) remains open.

__________________________________________________

(1) Cimarex Energy Co. v. Mauboules, 2009-1170, 2009-1180 and 2009-1194 (La. 4/29/10), available at http://www.lasc.org/news_release/2010/2010-027.asp. Kean Miller Partners G. William Jarman and Linda S Akchin and Kean Miller attorney Kimberly Hymel represented, on appeal, a an owner of an undivided working interest who joined with Cimarex in paying its share of the disputed royalties into the registry of the court, submitting a Writ Application and Brief on the Merits to the Louisiana Supreme Court on behalf of their client, addressing the propriety of the concursus proceeding and the interpretation of the penalty provision of the Louisiana Mineral Code.

(2) Cimarex Energy Co. v. Mauboules, 2008-452 (La. App. 3 Cir. 3/11/09), 6 So.3d 399. 

(3) Only Justice Knoll dissented, finding that the stakeholder/mineral royalty payor’s decision not to pay was not “a reasonable cause for nonpayment” under La. R.S. 47:212.23(B), which provides: “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.” Justice Knoll reasoned that (i) at some point [the stakeholder/royalty payor] should have realized that the royalty interest vendors’ claim of fraud was “simply bogus,” and (ii) the fraud claim could “in no way affect” the third party purchasers’ status as a bona fide purchaser entitled to the protections of La. Civ. Code Art. 2035, which provides: “Nullity of a contract does not impair the rights acquired through an onerous contract by a third party in good faith. If the contract involves immovable property, the principles of recordation apply to a third person acquiring an interest in the property whether by onerous or gratuitous title.” 

(4) The “clean hands doctrine” is a fundamental principle expressed in the maxim: “He who comes into a court of equity must come with clean hands.” 

(5) La. R.S. 31:139 and La. R.S. 31:140, relating to royalty payments to mineral lessors, both contain language providing that “the court may award as damages double the amount of royalties due.”

(6) Justice Knoll, dissenting, reached this question and held that, pursuant La. R.S. 31:212.23, the royalty payee is entitled to double the amount of the royalty owed, and no more, reasoning that (i) if the Legislature had intended the provision to permit a treble damage award it would have said so; (ii) the legislature has in other instances enacted statutes unambiguously permitting treble damages; and (iii) as a penal statute, La. R.S. 31:212.23 must be strictly construed.

(7) La. R.S. 31:212.21 provides: “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.”

(8) Justice Knoll, dissenting, noted that she need not resolve this issue because more than thirty days passed between the date of demand for payment of royalties and the date of deposit into the registry of the court.

 

In the January 20, 2010 Louisiana Register, the Office of Conservation, Louisiana Department of Natural Resources issued a Notice of Intent to amend Statewide Order 29-B to incorporate new rules for the evaluation and remediation of groundwater conditions at exploration and production sites.

The proposed rules can be found at this link.   As part of the proposal, Conservation has published a draft manual entitled “Exploration and Production Waste Site Evaluation and Remediation Procedures Manual” or “SERP Manual.”   A copy of the SERP Manual can be found here. 

Conservation will accept comments on the proposal through March 8, 2010.   A public hearing on the proposal is scheduled for March 1, 2010, at 9:00 a.m. (CST).   Anyone with interests involving energy exploration and production sites should carefully review the proposal.

There are scores of oilfield contamination cases, coined “legacy lawsuits,” in which landowners claim that their property has been contaminated by historical oil and gas exploration and production operations. Legacy lawsuits are a means for plaintiffs to potentially obtain large jury verdicts to remediate property. Plaintiffs, however, are not required to use their monetary awards towards the remediation of their property. In 2006, the Louisiana Legislature, in response to windfall jury verdicts, lack of remediation obligations on landowner plaintiffs, and the adverse effect of those events on oil and gas operators in the State, enacted Louisiana Revised Statute 30:29 (“Act 312”). Act 312 reflects the Legislature’s concern that the State’s natural resources were not being protected under then-existing laws. 

The constitutionality of Act 312 was recently challenged in M.J. Farms, Ltd. v. Exxon Mobil Corporation, No. 07-CA-2371. In a unanimous opinion rendered by the Court, Act 312 was held to be not only constitutional but also applicable to legacy cases.  

In finding that the statutory language was clear and unambiguous, the Louisiana Supreme Court held that Act 312 is applicable whenever there is “any litigation or pleading making a judicial demand arising from or alleging environmental damage” involving “contamination resulting from activities associated with oilfield sites or exploration and production sites.” The Court reasoned that remediation of contamination caused by oilfield exploration and production activities is within the jurisdiction of the Louisiana Department of Natural Resources (“DNR”) and requires compliance by public and private parties alike. This is true regardless of whether plaintiff’s claims for remediation arise from the Louisiana Mineral Code or Civil Code. On this point, the Court concluded that Act 312 supplemented the Mineral Code.

The Louisiana Supreme Court further held that the Legislature intended Act 312 to be applied retroactively. Act 312 states that it “shall not apply to any case in which the court on or before March 27, 2006, has issued or signed an order setting the case for trial, regardless of whether such trial is continued.” The Court concluded that the inclusion of “any case” evidenced the Legislature’s express intent for Act 312’s retroactive and prospective application except in those limited cases that had trial dates as of March 27, 2006. 

Because the case could not be resolved on non-constitutional grounds, the Louisiana Supreme Court further addressed plaintiff’s constitutional arguments. Plaintiff first argued that the retroactive application of Act 312 disturbed plaintiff’s vested right to “receive a full and complete recovery for [its] private injury to [its] property.” Prior to Act 312, a plaintiff could receive the full amount of damages a court awarded and was not obligated to use any money awarded to remediate the damaged property. Act 312 was enacted to require the money awarded to be used to remediate the damaged property. Act 312 requires that any award received by a plaintiff must be deposited in the registry of the court which will be used to fund a remediation plan. This, the plaintiff argued, is a substantive change of the law. 

The Louisiana Supreme Court rejected plaintiff’s argument and held that Act 312 does not impair a vested right. The Court concluded that Act 312 provides a procedure for resolving claims for environmental damage, the goal of which is to ensure that the damaged property is actually remediated according to standards protecting the public’s interest.            

The Louisiana Supreme Court also rejected plaintiff’s constitutional argument that Act 312 divests district courts of their original jurisdiction and denies plaintiffs access to district courts. To the contrary, the Court noted that any claim for environmental damage that is filed in a district court triggers Act 312. The claim is not deferred to DNR until the court determines the existence of environmental damage and the legally responsible party. The court is not required to adopt the remediation plan approved by DNR but may choose a remediation plan more feasible to “protect the environment and the public health, safety, and welfare.”    

Although the Louisiana Supreme Court upheld the constitutionality of Act 312, how it is applied to legacy lawsuits is presently being argued in district courts and appellate courts throughout the State. The issues facing district and appellate courts include the following: how to apply the provisions of Act 312 when a defendant admits it is a legally responsible party; when should a district court refer a matter to DNR for development of a remediation plan; who should decide who the legally responsible parties are; and does Act 312 call for two trials or one. These are some of the issues that the Louisiana Supreme Court will likely have to address in the future. 

The 16^th Judicial District Court granted a well operator’s motion for summary judgment and exception of no right of action and dismissed all of a property owner’s claims in a pending legacy oilfield suit. The Louisiana Third Circuit Court of Appeal upheld the trial court’s decision in LeJeune Brothers, Inc. v. Goodrich Petroleum Co., L.L.C., et al., 2006-1557 (La.App. 3 Cir. 11/28/07), __ So. 2d __, 2007 WL 4178946, rehearing denied (1/9/2008).   

LeJeune Brothers, Inc. (“LeJeune”), the property owner, claimed that the Goodrich Petroleum Company, L.L.C. (“Goodrich”), a company whose predecessor had operated an oil and gas well on the property at issue, was liable to LeJeune for damages arising in tort and in contract, punitive damages, as well as damages for claims arising under the Mineral Code. Goodrich’s predecessor had operated pursuant to a mineral lease that had been executed with LeJeune’s predecessor in interest. LeJeune claimed that it was only after the purchase of the property in 2000 that it discovered that the property was contaminated with waste resulting from oilfield exploration and production activities and LeJeune maintained that it had no knowledge that the property was contaminated prior to the purchase of the property. 

TRIAL COURT

In dismissing LeJeune’s contract claims the trial court ruled that LeJeune: (1) was not a successor or assignee to its predecessor’s rights and obligations under the mineral lease;  (2) was not a beneficiary of a stipulation pour autrui contained in the mineral lease; and (3) was not entitled to bring claims for restoration for breach of implied obligations contained in the Mineral Code.

In dismissing LeJeune’s tort claims the trial court found that LeJeune’s claims for damages arising in tort that belonged to its predecessor in interest had not been transferred to LeJeune. Thus, the trial court granted Goodrich’s exception of no right of action dismissing all of LeJeune’s tort claims. 

COURT OF APPEAL

LeJeune’s motion for new trial was denied by the trial court and LeJeune appealed the following rulings from the trial court:

(1)           The judgment granting Goodrich’s motion for partial summary judgment that dismissed LeJeune’s contract claims.

(2)           The judgment granting Goodrich’s exception of no right of action that dismissed all tort claims filed by LeJeune.

(3)           The judgment dismissing all of Goodrich’s claims (ruling followed granting of motion for partial summary judgment and was rendered at same time as granting of exception of no cause of action).

          On appeal, the Louisiana Third Circuit Court of Appeal upheld the trial court’s dismissal of all of LeJeune’s claims for damages, including its contract claims, tort claims, claims for punitive damages, claims based on obligations arising under the Mineral Code and unjust enrichment. 

Contract Claims

In upholding the trial court’s dismissal of LeJeune’s contract claims, the Third Circuit explained that because the mineral lease expired two (2) years before LeJeune acquired an interest in the property, there was no way that the LeJeune’s predecessor in interest could have transferred any interest in the mineral lease to LeJeune. LeJeune’s predecessor was not a mineral lessor under the lease at the time he sold the property to Plaintiff. Therefore, LeJeune’s predecessor did not have any rights in the mineral lease to transfer to LeJeune. It is simply “impossible to transfer rights to an assignee under an expired mineral lease.” Id. at *4. Further, the Third Circuit upheld the trial court’s ruling that no stipulation pour autrui was created by the Lease at issue in this suit. To the contrary, the Lease at issue limited the Lessee’s liability to damages caused to the Lessor: “The Lessee shall be responsible for all damages to Lessor caused by Lessee’s operations.” Therefore, because the Lease provided rights only to the Lessor and because LeJeune was not a Lessor, LeJeune could not seek damages under the Lease as a third party beneficiary.  

Tort Claims

The Third Circuit upheld the trial court’s grant of Goodrich’s exception of no right of action based on the subsequent purchaser doctrine. The September 2000 sale from LeJeune’s predecessor to LeJeune did not contain a specific assignment of any claims for damage to the property. In reaching the conclusion that LeJeune did not acquire rights to sue in tort as a result of its purchase of the property, the Third Circuit denied LeJeune’s argument that the decision rendered in Hopewell, Inc. v. Mobil Oil Co., 00-3280 (La. 2/9/01), 784 So.2d 653, “overturned consistently held jurisprudence that the right to assert a claim for damages to land is a personal right, not a real right, and can only be transferred through a specific assignment of that right.” Id. at *7.   The Third Circuit explained that the Hopewell decision did not establish a new legal principle and reiterated that the rule in Prados v. South Central Bell Telephone Co., 329 So.2d 744 (La. 1975), applied- “the right to damages conferred by a lease was a personal right, not a property right, and as a personal right/obligation, it did not pass to the new owners of the land because there was no specific conveyance of it in the instrument of sale.” Id. a *7 (citing Hazelwood , 844 So.2d 380; May v. Texaco, Inc., 73 Fed.App. 78 (5^th Cir. 2003); and Frank C. Minvielle, L.L.C. v. IMC Global Operations, Inc., 380 F.Supp.2d 755, 771 (W.D. La. 2004)). 

The Third Circuit also failed to follow LeJeune’s argument that because a mineral lease is classified as a real right under the Mineral Code that LeJeune acquired the benefits of the mineral lease when it bought the property. The Third Circuit explained that “a claim for damages, whether it arises under a predial lease or a mineral lease, is a personal right which must be specifically assigned to run with the property.” Id. at *8 (citing Prados, 329 So.2d at 751).    

Further, the Third Circuit ruled that because LeJeune’s predecessor in interest was the landowner and the mineral lessor from the execution of the Lease until the Lease completely terminated, no mineral servitude was created. Therefore, the Third Circuit ruled that Goodrich was not liable for restoration damages under the obligations implied by Articles 22 or 122 of the Mineral Code. 

 The Third Circuit also refused to find that Goodrich’s actions constituted a continuing tort explaining that where “‘a tort involves continuing injury, the cause of action accrues at the time the tortious conduct ceases.’” Id. at *8 (citing Grefer v. Alpha Technical, 02-1237 (La.App. 4 Cir. 3/31/05) 901 So.2d 1117, writ denied, 05-1590 (La. 3/31/06), 925 So.2d 1248 (which quotes In re Med. Rev. Panel of Moses, 00-2643 (La. 5/25/01), 788 So.2d 1173. The Third Circuit found that the tortious conduct ended in 1987 when the well site was plugged and abandoned.  The Third Circuit explained that “[w]hen a defendant’s damage-causing act is completed, the existence of continuing damages to the plaintiff, even progressively worsening damages, does not present successive causes of action accruing because of a continuing tort.” Id. at *9 (citing Derbofen v. T.L. James & Co., 355 So.2d 963 (1977), writs denied, 357 So.2d 1168, cert. denied, 439 U.S. 911, 99 S.Ct. 280, 58 L.Ed.2d 257 (1978)). Therefore, the Third Circuit ruled that as in Minvielle, 380 F.Supp2d at 765-66, “the tortious conduct was the disposal of the waste into plaintiff’s property, not the failure to remove it” and did not apply the continuing tort doctrine to allow LeJeune to bring claims in tort against Goodrich. 

Other Damages

LeJeune had conceded that there were no issues of material facts with respect to their punitive damages claims under former La. C.C. 2315.3 and claims for mental anguish and the trial court dismissed those claims. No appeal of the dismissal of those claims was made by LeJeune. 

Further, the Third Circuit stated in denying LeJeune’s claims for unjust enrichment that such relief only is granted when no other express remedy exists. Id. at 12 (citing Mouton v. State, 525 So.2d 1136, 1142 (La.App. 1 Cir. 1988), writ denied, 526 So.2d 1112 (La. 1988) (other citation omitted)). The Third Circuit ruled that because a remedy for alleged oil and gas contamination is provided by law, LeJeune did not have a claim for unjust enrichment. Id.at 12.   

The U.S. Supreme Court granted Exxon Mobil Corporation’s (“Exxon Mobil”) Petition for a Writ of Certiorari (2006 WL 1786680, 75 USLW 3009, 6/29/2006) and vacated the punitive damages award granted in the Grefer suit. See, Exxon Mobil Corporation v. Grefer, Joseph, et al., 05-1670 __ S.Ct. __, 2007 WL 559870 (2/26/2007).         

Plaintiffs claimed that their property had been contaminated with naturally occurring radioactive material (“NORM”) as a result of the pipe cleaning operations conducted thereon. A jury rendered judgment for the plaintiffs and awarded $56.145 million in compensatory damages, $145,000 in general damages, $56 million in restoration costs, and $1 billion in exemplary/punitive damages. The Louisiana Fourth Circuit Court of Appeal affirmed the awards of compensatory damages, general damages, and damages awarded for restoration costs, but reduced the $1billion award for punitive damages to $112.290 million. 

The reduction was granted because the punitive damages award was so excessive in comparison to the amount awarded in compensatory damages that it constituted “an irrational and arbitrary deprivation of Exxon’s property” and violated the Due Process Clause of the Fourteenth Amendment. Exxon Mobil’s Application for Writ of Certiorari and/or Review from the Louisiana Supreme Court following the Louisiana Fourth Circuit Court of Appeal’s ruling was denied. See, 925 So.2d 1248. Therefore, Exxon Mobil filed a Petition for Writ of Certiorari with the U.S. Supreme Court. See, 2006 WL 1786670, 75 USLW 3009. The U.S. Supreme Court granted Exxon Mobil’s Petition for a Writ of Certiorari on February 26, 2007 and thereby vacated the previous judgment. The case was remanded to the Louisiana Fourth Circuit Court of Appeal “for further consideration” based on the U.S. Supreme Court’s ruling in Philip Morris USA v. Williams, 05-1256 (2/20/2007), 127 S.Ct. 1057. 

In Williams, the U.S. Supreme Court “explicitly” held “that a jury may not punish for the harm caused to others.” 

On January 31, 2007, a Louisiana district court in Cameron Parish set aside a jury verdict from two months earlier that awarded $57 Million for wetlands losses allegedly caused by decades of surface water discharges of produced water. In its January 31, 2007 Ruling of the Court in the Dore Energy, Corporation v. Carter-Langham, Inc., et al case, the court concluded that the landowner could not sue the sublessee under the mineral lease at issue because the sublessee had concluded its operations under that lease prior to the Louisiana Mineral Code becoming effective.   The court found the landowner-plaintiff had no privity of contract with the sublessee-defendant. The court also found that Act 312 of the 2006 Regular Session of the Louisiana Legislature applied to the plaintiff's claims, reversing an earlier procedural ruling in the case. Act 312 creates certain procedures in lawsuits involving claims of contamination resulting from activities associated with oilfield sites or exploration and production sites. The court ordered the case stayed and ordered that appropriate notices be given to the state of Louisiana as required by Act 312.    Further developments in the case are likely.

"We are very excited to welcome these distinguished attorneys to our law firm. They are an outstanding resource for our clients. Our offices are located in Louisiana's major port cities --- New Orleans, Baton Rouge and Lake Charles -- and this esteemed group brings over 150 years of combined experience in maritime issues, admiralty law, marine insurance, oil & gas, drilling and exploration, pipelines, construction, and energy law to our clients." said Gary A. Bezet, managing partner of the 121-lawyer firm.

Michael A. McGlone, Charles R. Talley, Glenn P. Orgeron, Lisa A. Easterling, Bradley J. Schlotterer, and Lawrence J. Hand, Jr. join the firm as partners in the New Orleans office. The firm also welcomes Karen Waters Shipman, Stephen C. Hanemann, Jamie Domilise Henry, Kelly B. Green, and Michael J. O'Brien as associates. Heather Ashman Johnson joins the firm as of counsel. All were formerly with Lemle & Kelleher, LLP of New Orleans.

About the New Partners:

Michael A. "Mike" McGlone joins the firm as a partner in the New Orleans office. He is the senior-most Admiralty and Maritime lawyer in the firm. He has extensive experience in admiralty and maritime law, maritime litigation, marine insurance, personal injury defense, allisions, collisions, and appeals. Mr. McGlone, a native of New Orleans, received his J.D. from Loyola University Law School in 1975 where he was a member of the Loyola Law Review. He earned his B.A. in Business Administration, cum laude, from Loyola University in 1972. Upon graduation from law school, he served as a law clerk to the Hon. Herbert W. Christenberry of the United States District Court for the Eastern District of Louisiana.

Charles R. "Chuck" Talley joins the firm as a partner in the New Orleans office. He practices in the Admiralty and Maritime and Oil & Gas practice groups. He has particular experience in admiralty and maritime law, personal injury defense, property damage claims, appeals, Corbello litigation, and oil & gas law. Mr. Talley received his J.D. from Florida State University in 1981 where he was a member of the Florida State University Law Review and served as Articles and Notes Editor. He earned B.A., magna cum laude, from Vanderbilt University in 1978.

Glenn P. Orgeron joins the firm as a partner in the New Orleans office. A native of New Orleans, he practices in the Admiralty and Maritime and Construction practice groups. He has particular experience in construction law, consumer credit issues, and product liability litigation. Mr. Orgeron is a Lieutenant Colonel (Retired) in the United States Marine Corps. He has served in a variety of legal positions for the United States Marine Corps, including assignments as Deputy General Counsel, Assistant General Counsel, and General Counsel in wide range of jurisdictions including Hawaii, Japan, the Indian Ocean, Washington, D.C., California, and Panama. During his military career, Mr. Orgeron handled all aspects of felony criminal trials and administrative law litigation matters and advised the staffs of the Chief of Naval Operations, Joint Chiefs of Staff, and major operational commanders on worldwide international and operational law. Prior to his 20-year military career, he served as an electrical engineer with the NASA Manned Spacecraft Center in Houston on the Apollo XI Lunar mission and on the Apollo Lunar Rover development team. Mr. Orgeron received his J.D. from the Tulane University Law School in 1978 and his Master of Legal Letters in International Law from The George Washington University in 1983. He earned his Master of Science in Electrical Engineering from Louisiana State University in 1970 and his Masters of Science in Administration from The George Washington University in 1975. Mr. Orgeron earned his B.S. in Electrical Engineering from Tulane University in 1968.

Lisa A. Easterling joins the firm as a partner in the New Orleans office. She practices in Construction and Litigation groups. Ms. Easterling has extensive experience in complex commercial construction matters, construction defect cases, mold litigation, and Fair Credit Reporting Act litigation. Ms. Easterling received her J.D. from the University of Mississippi Law School in 1992 where she was a member of the Mississippi Law Review. After law school, she served as a judicial law clerk to the Hon. George Arceneaux, Jr. , the Hon. Henry A. Mentz, Jr. and the Hon. Veronica D. Wicker, all of the United States District Court for the Eastern District of Louisiana. She earned her B.S. in Journalism, with honors, from the University of Southern Mississippi in 1988.

Bradley J. Schlotterer, a native of New Orleans, joins the firm as a partner in the New Orleans office. He practices in the Admiralty and Maritime practice group. Following law school, Mr. Schlotterer served as a federal law clerk to the Hon. G. Thomas Porteous, Jr. at the United States District Court for the Eastern District of Louisiana. Mr. Schlotterer received his J.D. from the LSU Law Center in 1995. He earned his B.S. in Finance from Louisiana State University in 1991.

Lawrence J. Hand, Jr. joins the firm as a partner in the New Orleans office. He practices in the Energy, Pipeline and Toxic Tort practice groups. Mr. Hand has extensive experience in energy law, regulation and litigation, insurance coverage and litigation, toxic tort litigation, contract litigation, and complex commercial disputes. He has particular experience in complex legal representation of interstate and intrastate natural gas pipelines, natural gas gathering companies, crude pipelines, natural gas processors, power generators, marketers and distributors, oil and gas producers, chemical manufacturers, and aluminum manufacturers. Mr. Hand also represents life insurers, regional banks, malpractice insurers, and general liability insurers. Mr. Hand received his J.D., cum laude, from the Loyola University School of Law in 1995 where he was a member of the Loyola Law Review. He earned his B.A. in Secondary Speech and Communication Education from the University of New Orleans in 1991.

About the New Attorneys:

Karen W. Shipman joins the firm as an associate in the New Orleans office. She practices in the Admiralty and Maritime practice group. She has particular experience in admiralty issues involving a wide variety of admiralty and oil & gas issues, including Jones Act, personal injury, oil and gas exploration, well blowouts, cargo damage, vessel collisions, and barge damage. She also has experience in construction law, consumer credit reporting, and general personal injury litigation. Following law school, Ms. Shipman served as a contact attorney in New York City. Upon her return to New Orleans, she served as a judicial law clerk to the Hon. Fredericka H. Wicker of the Twenty-Fourth Judicial District Court for the Parish of Jefferson. Karen received her J.D., cum laude, from the Tulane University School of Law in 1998 with a Certificate of Specialization in Admiralty Law. She earned her B.A. in Anthropology and Human and Natural Ecology from Emory University in 1993.

Stephen C. Hanemann joins the New Orleans office as an associate attorney. He practices in the Admiralty and Maritime practice group. He has extensive experience in a wide variety of admiralty issues, including Jones Act, personal injury, oil and gas exploration, pipeline spills, drilling accidents, well blowouts, cargo damage, ship collisions, ship allisions, vessel groundings, lift boat and jack-up rig accidents, vessel liens, sunken barges, vessel mortgage filings, product liability, redhibition, commercial lease agreements, and other commercial litigation issues. Mr. Hanemann received his J.D. from the Loyola University School of Law in 2002. He earned his B.A. in French from the University of Texas at Austin in 1999.

Jamie Domilise Henry joins the New Orleans office as an associate attorney. She is a native of New Orleans and practices in the Admiralty and Maritime practice group. Ms. Henry received her J.D. and her Bachelor's Degree in Civil Law from the LSU Law Center in 2002. She earned her B.A. in Biology (1998) and English (1999) from the University of Mississippi.

Kelly B. Green joins the New Orleans office as an associate attorney. She practices in the Admiralty and Maritime practice group. Ms. Green received her J.D. from the Tulane University School of Law in 2003. She earned her B.A. in Political Science from Mary Baldwin College in 2000.

Michael J. O'Brien joins the New Orleans office as an associate attorney. A native of New Orleans, he practices in the Admiralty and Maritime practice group. He has extensive experience in a wide variety of admiralty issues, including Jones Act and personal injury defense, maritime litigation, oil and gas exploration, drilling accidents, well blowouts, cargo damage, ship collisions, ship allisions, vessel groundings, lift boat and jack-up rig accidents, vessel mortgage filings, product liability, redhibition, as well as premesis liability, construction defect litigation and appeals. Michael received his J.D. from Loyola University in 2001 where he received the Joseph Rault Award for excellence in Admiralty and Maritime Law. He earned his B.A. in Political Science from Iowa State University in 1998. He attended Iowa State on a NCAA football scholarship.

Heather Ashman Johnson joins the New Orleans office as of counsel. A native of New Orleans, Ms. Johnson practices in the Admiralty and Maritime practice group. She has served as Counsel for Brown & Root, Inc. in Houston, Texas and as a General Attorney with the Saudi Arabian Oil Company in Saudi Arabia. She has particular experience in complex commercial maritime issues including all aspects of international sales contract negotiations, chartering activities, downstream joint ventures, and in the negotiation of multi-million dollar cargo damage claims. Ms. Johnson received her J.D. from the University of Pennsylvania Law School in 1981 and a Master of Laws, with distinction, from the Tulane University School of Law in 1983. She earned her B.A. in Political Science, summa cum laude, from Newcomb College in New Orleans in 1977.

About the Admiralty and Maritime, Construction and Energy Law Groups:

Kean Miller represents a wide range of clients in admiralty and maritime issues in Louisiana. Our lawyers have extensive experience in the shipping, marine insurance, tugs and towage, drilling rigs, and oil & gas exploration. Our offices are located in major port cities throughout Louisiana, including New Orleans, Baton Rouge, and Lake Charles, Louisiana. Our Admiralty and Maritime team has significant experience in personal injury defense, property damage claims, appeals, and oil & gas law. We offer clients detailed admiralty experience with regard to activities in the "oil patch" involving the exploration, development, production and transportation of oil and gas. We represent numerous clients in "brownwater" and deepwater (or "bluewater") matters throughout the Gulf Coast region. Many members of the team are involved at a leadership level in the Maritime Law Association, the Greater New Orleans Barge Fleeting Association, the Marine Index Bureau, Mariners Club Port of New Orleans, and the maritime and admiralty sections of the Louisiana State Bar Association and the American Bar Association. We represent our clients before all state and federal courts, governmental regulatory and administrative bodies, and in complex litigation. We serve as counsel to local, national and international oil and gas producers, vessel owners and operators, shipyards, drilling contractors, service companies, brokers, barge lines, and underwriters.

Kean Miller represents many of Louisiana's most successful construction businesses and Fortune 500 companies in construction law matters. We handle legal issues in connection with contract interpretation, including drawings, specifications, change orders and back charges, lien rights and remedies, contract disputes and litigation. In addition, we have substantial experience in the Private Works Act, the Public Works Act and the Miller Act. Our lawyers assist industry clients with issues involving performance and payment, bid and retainage bond rights, liability and responsibility. On behalf of our clients, we have negotiated with owners, general contractors, subcontractors, architects, laborers, material men, bond companies, suppliers, architects, attorneys, bankruptcy trustees, bankers, and public officials.

We also represent clients in lawsuits, arbitration, mediation and alternative dispute resolution proceedings. Recently, we have represented clients in lawsuits involving insurers of engineers and building owners, and suits for and against sub-contractors and architects.

Kean Miller has represented the Louisiana energy industry since its earliest presence in the state. Many of the firm's national and international chemical and refining clients came to our predecessor firm in the 1920s for assistance in the acquisition of land for their first Louisiana sites. As these companies expanded in Louisiana, so did the variety and complexity of their legal needs. Today, these energy clients continue to rely on Kean Miller for their legal services based on our understanding of the complex needs of their industry, our knowledge of their business, and our Louisiana know-how.

Kean Miller has extensive experience in energy law, regulation and litigation. We have particular experience in complex legal representation of interstate and intrastate natural gas pipelines, natural gas gathering companies, crude pipelines, natural gas processors, power generators, marketers and distributors, oil and gas producers, chemical manufacturers, and aluminum manufacturers.

About Kean Miller:

With more than 120 lawyers, Kean Miller serves the legal needs of Louisiana businesses and Fortune 500 companies. The firm maintains two offices in Baton Rouge, and full service offices in New Orleans, Lake Charles and Plaquemine, Louisiana. Kean Miller is the largest law firm in the Greater Baton Rouge region. The firm serves clients in numerous industries including energy, petrochemical and chemical, technology and telecommunications, shipping and transportation, drilling and exploration, pipelines, media and advertising, financial services, insurance, gaming, government and education, health care, manufacturing, real estate, retail, construction and leasing. The firm combines the talent and expertise of its lawyers into multi-disciplinary client and industry teams. These teams are comprised of seasoned legal professionals from a variety of disciplines who are equipped to identify legal and business needs and to develop superior service strategies that provide unmatched support to the client.

For more information, contact Steve Boutwell at 225.389.3736, or steve.boutwell@keanmiller.com

Writ applications have been filed with the Louisiana Supreme Court in two oilfield pollution cases that have the potential to dramatically impact the scope of the numerous legacy lawsuits currently pending throughout the state.

In the case of Joseph Grefer, et al. v. Alpha Technical, et al., 2005-C-1590 and 2005-C-1259, on application for writ of certiorari from the Louisiana Fourth Circuit Court of Appeal, 2002-CA-1237 (La. App. 4th Cir. 3/31/05), on appeal from the Civil District Court, Orleans Parish, both plaintiffs and defendants have filed for writs as a result of the decision of the Louisiana Fourth Circuit Court of Appeal as to the amount of punitive damages appropriate in this matter. In addition, defendants have also sought writs on the issue of the applicability of the Louisiana Department of Environmental Quality (LDEQ) standards for the remediation of property impacted by Naturally Occurring Radioactive Materials (NORM) and whether compliance with said standards is deemed to be a "reasonable" restoration under Louisiana law. In this case, the Fourth Circuit held that it was not error for the trial court to refuse to instruct the jury as to the applicable LDEQ standards for the remediation of NORM-contaminated property.

Defendants' writ application in Grefer is supported by amicus briefs filed by the Louisiana Department of Economic Development and Louisiana Department of Environmental Quality, the Louisiana Association of Business and Industry, the Louisiana Mid-Continent Oil and Gas Association, and the Louisiana Chemical Association. (Kean Miller filed the amicus curiae brief in this case on behalf of the Louisiana Chemical Association.)

In both of these matters, the Louisiana Supreme Court has before it cases that will potentially allow the court to revisit its prior decisions in the Roman Catholic Church and Corbello cases that have been the basis for many of these oilfield legacy cases. To date, the Louisiana Supreme Court has not issued its decision as to whether to grant writs in either of these cases.

Networking Breakfast
7:15 a.m. - 8:00 a.m.

Katrina's Effect on the Energy Industry in Louisiana
8:00 a.m. - 9:00 a.m.
Panelists: Don Briggs, Louisiana Independent Oil & Gas Association; Dr. David Dismukes, LSU Center for Energy Studies; Jim Porter, Louisiana Mid-Continent Oil & Gas Association; Dane Revette, La. Dept. of Economic Development, Energy Cluster; G. William "Bill" Jarman, Partner, Kean Miller.

The Future of Electricity Rates and Energy Prices in Louisiana
9:00 a.m. - 9:30 a.m.
Dr. David Dismukes, LSU Center for Energy Studies; Katherine W. King, Partner, Kean Miller.

RSVP by contacting Ami Parks at 225.382.3472 or ami.parks@keanmiller.com
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Louisiana Environmental Forum - Working Together for Louisiana
Friday, October 14th
7:15 a.m. - 9:30 a.m.

Networking Breakfast
7:15 a.m. - 8:00 a.m.

Louisiana's New Environmental Landscape
8:00 a.m. - 9:00 a.m.
Panelists: Mike McDaniel, Secretary, Louisiana Department of Environmental Quality; Dan Born and/or Henry Graham, Louisiana Chemical Association; Richard Metcalf, Louisiana Mid-Continent Oil & Gas Association; Maureen N. Harbourt, Partner, Environmental Law, Kean Miller.

Environmental Regulation in the New Louisiana: Start Ups, Shut Downs and Working with DEQ under Emergency Rules and Orders
9:00 a.m. - 9:30 a.m.
Presented by Dwayne Johnson, Partner, Environmental Law, Kean Miller; Esteban Herrera, Partner, Environmental Law, Kean Miller; Kyle Beall, Partner, Environmental Law, Kean Miller

RSVP by contacting Ami Parks at 225.382.3472 or ami.parks@keanmiller.com
____________________________

RSVPs are required. Please RSVP to Ami Parks at 225.382.3472 or ami.parks@keanmiller.com

Drusilla Place
3482 Drusilla Lane
Jefferson Highway at I-12 in Baton Rouge.

In-house counsel who are employed in Louisiana but are not licensed to practice law here have until July 1, 2005 to file an application for limited licensure to practice under the Louisiana Supreme Court's new In-House Counsel Rule.

Licensure pursuant to the In-House Counsel Rule is discretionary and is not a matter of right. The license issued pursuant to this rule only authorizes the lawyer to practice exclusively for the employer filing the affidavit submitted with the application. The license is automatically terminated if the lawyer's employment with the employer filing the affidavit is terminated. If the lawyer's employment is terminated but the lawyer is immediately thereafter employed by another employer who files an affidavit, the limited license shall be reinstated. A limited license is valid for four years from the date of issuance. The limited license may be renewed for a successive four year period by filing a written application required by the Committee at least 90 days prior to the expiration of the current license. The application for renewal shall be accompanied by a non-refundable fee.

A lawyer admitted pursuant to the In-House Counsel Rule is required to pay the annual disciplinary assessment required of attorneys admitted to practice three years or more in Louisiana, and State Bar Association annual dues during the period of the limited license. The in-house counsel must also comply with the Louisiana Continuing Legal Education requirements.

If you have questions about the In-House Counsel Rule, please contact us, or the Louisiana Committee on Bar Admissions.

The Louisiana Fourth Circuit, in a decision sure to be appealed, recently upheld a lower court's award of compensatory damages - and reduced the lower court's punitive damage award - as a result of the defendants' alleged contamination of the plaintiffs' land with naturally occurring radioactive material (NORM). Grefer, et al. v. Alpha Technical, et al., 2002-CA-1237 (La. App. 4th Cir. 3/31/05); appeal from, Civil District Court, Orleans Parish.

In reaching its decision, the Fourth Circuit rejected all but one of the defense's 7 assignments of error, including prescription; unlawful jury verdict; improper jury instructions; and availability of punitive damages. The Fourth Circuit's decision is troubling on a number of levels; e.g., the application of prescription to causes of action under Louisiana's repealed punitive damages Civil Code article; what constitutes wanton or reckless conduct forming the basis for a punitive damage award; the appropriate interplay between cleanup standards established by governmental agencies and cleanup standards applied by the courts; etc. Thus, the Louisiana Supreme's anticipated action on appeal will bear particular scrutiny.

Read related post in Legacy Oil Field Sites.

Amicus curiae brief filed by Kean Miller Partners Bill Jarman and Linda Akchin for the American Petroleum Institute, the Louisiana Mid-Continent Oil & Gas Association, and the Louisiana Independent Oil & Gas Association.

Summary:

In Terrebonne Parish School Board vs. Castex Energy, et al., the Louisiana Supreme Court has held that a mineral lessee has no implied obligation to backfill oilfield access canals when the oil company's lease granted an express right to dredge canals and where there is no evidence that the oil company lessees exceeded the rights granted to them under the lease or acted unreasonably or negligently in dredging the canals. Article 122 of the Louisiana Mineral Code only imposes a duty to restore the surface to its original condition where there is evidence of unreasonable or excessive use of the surface of leased premises.

The plaintiff landowner/lessor claimed that oilfield access canals dredged by defendants altered the hydrology of the marsh and adversely affected its ecology by removing marsh terrain, creating soil banks, and impairing the ebb and flow of tidal waters. The dredging of the canals resulted in a loss of 27.74 acres of marsh land. The mineral lease at issue expressly granted the lessee, and its assigns, the right to dredge canals but was silent with respect to the lessee's surface restoration obligation at the end of the lease.

At trial, Castex, the last lease operator, and the other lessees submitted uncontested evidence that they had complied with all regulations of the Louisiana Commissioner of Conservation governing plugging and abandonment of oil and gas wells, closing of oil field pits, and clearing the area around abandoned wells. Testimony was also presented that it was not the custom and practice in the oil and gas industry to backfill canals at the cessation of a lease. The plaintiff's expert also conceded that backfilling canals was "more the exception than the rule" at the conclusion of lease operations.

Following trial, the district court entered judgment in favor of the School Board. The district court found that the defendant mineral lessees were solidarily liable to the School Board under the lease for restoration of the School Board's property "to a condition as near as practicable to its pre-leased condition." The court ordered the defendants to deposit $1.1 million plus judicial interest into the registry of the court to be used to restore the property. The court also appointed a Special Master to "oversee the design, permitting, execution and disbursement of funds for said marsh restoration plan." The Special Master was ordered to devise a plan for filling the canals that would (1) preserve and make use of the current spoil banks and include water control structures as necessary, (2) include the plugging of the canals with earthen and/or stone material, if feasible, (3) result in filling the canals with a suitable material to result in the resolution of the displaced marsh to a condition as near as practicable to the property's pre-lease condition, and (4) be completed within two years of the date the defendants were to deposit the funds into the registry of the court. The court further ordered that any unused portion of the $1.1 million would be returned to defendants.

On appeal, the First Circuit Court of Appeal affirmed the trial court's finding of an implied restoration obligation but vacated that portion of the trial court's remedy that required a deposit of $1.1 million and the appointment of a Special Master to oversee the remediation. Instead, the Appellate Court majority held that the obligation under Article 122 of the Mineral Code was an obligation to specifically perform restoration without regard to the cost.

Notably, the First Circuit rejected the defendants' argument, based on the 1958 decision of Rohner v. Austral Oil Exploration Company, that before imposing a duty to restore the surface, the court was required to find that the lessees were either negligent in their exercise of rights under lease, had used surface property outside the scope of the lease, or had otherwise acted unreasonably. The intermediate court further found that Rohner did not address the broad issue of whether the Mineral Code imposes an implied duty to restore the surface in the absence of an express duty under the lease. Rather, Rohner only considered the narrow issue of whether a lessee who had actually undertaken restoration of the surface but had failed to perform satisfactorily was liable to the lessor for damage.

Judge McDonald dissented from the majority's conclusion that Article 122 imposed a duty to restore absent an express lease provision or any showing that the defendants negligently or excessively used the surface, or that it was customary for a reasonably prudent operator to backfill canals. Judge McDonald reasoned that Rohner represented a correct statement of the law and that the subsequent enactment of the Louisiana Mineral Code did not change the law. Judge McDonald further reasoned the Civil Code Articles 2719 and 2720 do not obligate a lessee to remedy damage to leased property from ordinary wear and tear. Judge McDonald further reasoned that Civil Code Article 2721, not mentioned by the majority, clarified that a lessee is only liable "for the injuries and losses sustained through his own fault." Imposing a restoration obligation, where none was specified in the lease contract, would alter the terms of the contract that were bargained for by the parties and would provide for something not contemplated by either party.

Finally, the dissent disagreed with the remedy selected by the trial court. The dissenting judge would have merely plugged the ends of the canals and allowed nature to regenerate the marsh. This process, would have more closely replicated the original condition of the property at a lower cost even though such restoration would have taken longer to accomplish.

The defendant lessees sought review of the lower courts' decisions by the Louisiana Supreme Court. Defendants argued that the lower courts erred in holding that Mineral Code Article 122 obligated a mineral lessee to restore the surface to its pre-lease condition absent proof that the lessee executed his rights unreasonably or negligently. In the alternative, the defendants argued that should the high court find that such a duty exists (1) breach of that duty must be measured by reference to what a reasonably prudent operator would do; (2) any such implied duty to restore the surface is limited by the land's fair market value; (3) the trial court should have chosen defendant's restoration plan, and (4) any duty to restore is subject to a one-year prescriptive period which had passed.

The Louisiana Supreme Court did not reach defendants' alternative arguments. In a 4-3 decision the Court held that "although the temptation may be to thrust a great part of the solution to the problem of coastal restoration upon the oil and gas companies and other private parties, rather than the state and federal governments currently faced with underwriting the expenses of restoration, we decline to do so out of respect for the terms of the mineral lease to which these parties have agreed. Thus, we reverse the courts below and find that, where the mineral lease expressly grants the lessee the right to alter the surface in the manner it did, and is silent regarding restoration, Article 122 [of the Mineral Code] only imposes a duty to restore the surface to its original condition where there is evidence of unreasonable or excessive use."

The majority opinion, written by Chief Justice Calogero, noted that the express language of Article 122 of the Mineral Code does not impose an express duty on a mineral lessee to restore the surface of the leased premises. Instead, the provisions of Article 122 impose two obligations: (1) to perform the obligation in good faith; and (2) to develop and operate the leased premises as a reasonably prudent operator for the mutual benefit of lessee and lessor. This article "simply adapts the general, 'good administrator' standard of La. Civ. Code Art. 2710, applicable to all leases, to the specific context of a mineral lease."

Despite the language in the comment to Mineral Code Article 122, the Supreme Court held that "[o]ur review of the jurisprudence bearing on this issue, as well as the general civil code articles dealing with lease, does not, however, persuade us that Article 122 imposes an implied duty to restore the surface absent proof that the lessee unreasonably or excessively exercised his rights under the mineral lease."

The Supreme Court noted that it had not squarely addressed the issue of whether, and under what circumstances Mineral Code Article 122 imposed an implied duty to restore the surface to its original condition. Other cases where the high court has awarded damages for a mineral lessee's failure to restore the surface have turned on the finding that the terms of the parties' lease expressly imposed this obligation. Citing Magnolia Coal Terminal v. Phillips Oil, the Supreme Court noted that the mineral lease at issue in that case provided that "[l]essee shall pay for all damages caused by lessee's operations, including damage to soil and other property." In Magnolia Coal, the court observed that this lease language "impose[d] on express obligation [to restore the surface] which is a matter of contract not within the purview of the mineral code." In Corbello v. Iowa Production, an express lease provision also existed which obligated the lessee upon termination of the lease, to "reasonably restore the premises as nearly as possible to this present condition." The Corbello case emphasized that the lease terms constituted the law between the parties. In addition, the Supreme Court in Castex distinguished both Magnolia Coal and Corbello as cases which involved allegations that defendants had acted negligently or unreasonably.

Analyzing several intermediate appellate decisions addressing the existence and scope of any implied duty to restore the surface, the Supreme Court in Castex agreed with defendants that Rohner properly articulated the rule concerning the scope of any implied duty to restore the surface. The rule articulated by Rohrer was as follows:

Unless provided for in the lease, the lessee is not responsible for damages which are inflicted without negligence upon the lessor's property in the course of necessary drilling operations. Moreover, when the damaging of the lessor's property by the mineral lessee is not negligent, per se, the lessor must prove that the injury was caused by unreasonable or negligent operation of the lease.

The Supreme Court specifically found "unpersuasive" the lower courts' attempt to distinguish Rohner as concerning only the limited circumstance where a lessee has undertaken restoration but not performed it satisfactorily.

The Supreme Court further noted that other intermediate appellate decisions such as Ashby v. IMC Exploration Company, Edwards v. Jeems Bayou, Broussard v. Waterbury, and Smith v. Schuster, similarly limit the scope of a lessee's duty to restore the surface to those circumstances where a mineral lessee has exercised his rights under the lease unreasonably.

The Supreme Court further held that Civil Code Articles 2719 and 2720 do not impose a strict obligation to return leased property in an unchanged condition. Rather, both articles allow for deterioration of the leased premises because of "wear and tear." In determining what constitutes "wear and tear" in a particular case, the specific rights granted in the lease should be considered as the lessor may be considered to have given his consent to the "wear and tear" normally involved in exercising the rights granted. The Supreme Court held that the School Board's express grant of the right to dredge canals constituted consent to or approval of the changes incidental to dredging.

Associate Justices Weimer, Knoll and Kimball dissented in Castex. Justice Weimer wrote that because the lease is silent regarding restoration, the law governing restoration at the conclusion of a lease applies. Article 122 of the Mineral Code does not expressly address the obligation of the lessee as it relates to surface restoration. Therefore, since the mineral code is silent regarding the mineral lessee's obligation to restore the surface, the Civil Code applies. In Justice Weimer's view, the applicable provisions of the Civil Code are Article 2719 and 2720 which provide that in absence of an inventory having been made at the beginning of a lease, the lessee is obligated to return the leased thing to his lessor in the same condition in which it was received, ordinary wear and tear excepted. Justice Weimer writes, and the other two dissenting Justices, Knoll and Kimball agree, that the dredging of multiple canals through marshland is not ordinary wear and tear but a major alteration of the premises. Under this circumstance the lessee should have an obligation to restore the surface of the lease.

Justice Weimer agrees that the parties to a mineral lease have the freedom to contract regarding what is required relative to surface restoration. For this reason he states that the terms of the lease are important and that in this case the lease clearly authorized the dredging of canals. However, in Justice Weimer's view, the right to dredge and use a canal is separate from the obligation to restore once the use has been completed. Should the lessee wish to avoid the obligation imposed by the Civil Code to restore the premises, the Lessee should include such a clause in the lease.

Justice Weimer also believes that the majority misreads the intermediate appellate decisions of Broussard, Smith and Edwards and that the lessee's obligation to return the leased premises in the same condition as when received, ordinary wear and tear excepted, is not a new concept in the law.

Justice Weimer further argues that Civil Code Article 2721, which provides that a lessee is only liable for damages occasioned by his fault, has no application. This article, he states, addresses the situation of an unrelated third party causing damage to the leased premises. In such a situation, the lessee would not be responsible for the unrelated third party's actions.

Although Justice Weimer believes that an obligation to restore the canals should have been found, he agrees with Judge McDonald's view of what remedy should be selected. No monetary award should be made. The canals should be plugged at the ends and nature should be allowed to restore a flotant marsh over an extended period of time. In Justice Weimer's view, the dredging of the canals at the time the lease was confected was a prudent use of the property. It would not be unreasonable for a lessor to wait as long as fifty years for nature to restore the marsh in light of the fact that both the lessor and lessee derived benefits from the canals for an extended period of time.

The Castex decision clarifies some, but not all, of the obligations of a mineral lessee with respect to surface restoration. The decision reaffirms that where a mineral lease expressly authorizes and grants the lessee the right to alter the surface of the leased premises but the lease is silent regarding restoration, Article 122 of the Louisiana Mineral Code only imposes a duty to restore the surface to its original condition where there is evidence of unreasonable or excessive use.