A pair of recent decisions from the US Supreme Court and the Fifth Circuit Court of Appeals signals a trend by the judiciary to closely scrutinize agency rulings where, in the past, courts have traditionally maintained a laissez-faire approach.

In Ohio v. EPA, the Supreme Court ruled that an agency action qualifies as arbitrary or capricious if it is not “reasonable and reasonably explained”.[1] The decision was 5-4, with Justice Gorsuch writing for the majority and Justice Barrett writing the dissent. In the dissent, Justice Barrett explained that the Court did not conclude that the EPA’s actions were substantively unreasonable. Rather, the primary basis for the Court’s decision is the argument that EPA failed to provide a “satisfactory explanation for its action” and a “reasoned response” to comments. Justice Barrett noted that the Court should, as it has most often done in the past, “uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.”[2] Thus, under Justice Barrett’s view, a reasonable result can save a poorly-explained decision from an Administrative Procedure Act challenge; Justice Gorsuch and the majority rejected this conclusion.

Likewise, a day prior to the Supreme Court’s ruling in Ohio v. EPA, the Fifth Circuit issued its opinion in National Association of Manufacturers v. SEC and held that the SEC had acted arbitrarily and capriciously in two ways: 1) the agency failed to adequately explain its decision to disregard its prior factual finding; and 2) the agency failed to provide a reasonable explanation regarding the significance of certain risks at issue in the matter.[3] The panel’s criticism focused on the agency’s rationale and its decision-making process, rather than the final resulting rule.

In each of the decisions, the courts cite FCC v. Prometheus Radio Project,[4] which had reformulated the arbitrary and capricious inquiry. In that case the Supreme Court ruled that “[a] court simply ensures that the agency has acted within a zone of reasonableness, and in particular, has reasonably considered the relevant issues and reasonably explained the decision.”[5] Per this language, the agency’s decision-making process, along with its final determination, will be scrutinized by the courts if a rulemaking is challenged.

Thus, it appears the “zone of reasonableness” test has usurped previous iterations of the arbitrary and capricious analysis. Combined with the overturning of Chevron deference also announced by the Court last year,[6] the likely overall effect of this new precedent will be greater scrutiny over agency action and a more restricted scope for permissible agency action.

[1] Ohio v. Env’t Prot. Agency, 603 U.S. 279, 292 (2024) (quoting FCC v. Prometheus Radio Project, 592 U.S. 414, 423 (2021)).

[2] Id. at 311 (Barrett, J., dissenting) (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).

[3] Nat’l Ass’n of Manufacturers v. United States Sec. & Exch. Comm’n, 105 F.4th 802, 811 (5th Cir. 2024).

[4] Fed. Commc’ns Comm’n v. Prometheus Radio Project, 592 U.S. 414 (2021).

[5] Id. at 423.

[6] See Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).

Two days before Christmas, the Louisiana Fifth Circuit Court of Appeal handed down an opinion that should be of note to Louisiana employers. In its opinion, the Court of Appeal held that as a matter of law, an employer can be vicariously liable for damages caused by an employee involved in a motor vehicle accident driving to work if the employee is eligible for a mileage reimbursement. Louisiana employers can be held responsible for their employees’ torts through the concept of “vicarious liability” (known as “respondeat superior” under common law). The concept of vicarious liability is codified in the Louisiana Civil Code at article 2320. For an employer to be held liable for an employee’s tort, (i) there must be an employee-employer relationship between the actor and the purported employer and (ii) the tort must have been committed within the course and scope of the actor’s employment with the employer.

Driving to and from work is generally not considered as being within the course and scope of employment; however, there are exceptions to that rule. In a unanimous December 23, 2024, panel opinion, the Louisiana Fifth Circuit Court of Appeal in Miller v. Shamsnia, 24-100 (La. App. 5th Cir. 12/23/24), ___ So.3d___, 2024WL5196576, held that an employer could be vicariously liable for damages caused by its employee while driving if the employer had a policy of reimbursing its employees for their mileage for travel to a work site, even if the employee did not request the reimbursement and was not paid the mileage. In its opinion, the Miller court expressly recognized that “[g]enerally, an employee going to and coming from work is not in the course and scope of employment.” Miller v. Shamsnia, 24-100 (La. App. 5th Cir. 12/23/24), p. 7, ___So.3d___, ___, 2024WL5196576, *4 (citation omitted). However, the court noted that the general rule is “subject to various exceptions, including situations where an employer has involved himself in the transportation of the employee as an incident to the employment agreement, either through furnishing a vehicle or payment of expenses, or where wages are paid for time spent in traveling.” Id. at p. 8, ___So.3d___, ___, 2024WL5196576, *4 (citations omitted).

In the case before the court, the employee involved in the motor vehicle accident was a neurologist who was driving from the New Orleans area to the Northshore on the Causeway Bridge en route to a hospital visit as part of a weeklong rotation. Deposition testimony reflected the fact that the physicians “were compensated through reimbursement of mileage for use of their personal vehicles [at the Internal Revenue Service’s rate for mileage].” Id. at p. 9, ___So.3d___, ___, 2024WL5196576, *4. Although the employee neither requested the travel reimbursement, nor was he paid any travel reimbursement for the night in question, the court noted that he was “eligible” for the reimbursement. Id. ___So.3d___, ___, 2024WL5196576, *4 (emphasis in original). The court held, “[t]herefore, we find that, under the particular circumstances of this case, the exception to the going and coming rule applies because Tulane offered payment of Dr. Shamsnai’s expenses through travel reimbursement. We further find that Dr. Shamsnai was acting within the course and scope of his employment while traveling to Lakeview Hospital on the night of the accident because Tulane had a policy for providing travel reimbursement to physicians commuting to Lakeview Hospital, and his trip to the hospital was employment related.” Id., ___So.3d___, ___, 2024WL5196576, *4 (emphasis added).

A copy of the Fifth Circuit’s opinion is available at the Fifth Circuit’s website: https://www.fifthcircuit.org/dmzdocs/OI/PO/2024/F8301AAE-4FF9-412B-9F2E-CF3C3714EB91.pdf. Because the parties may seek rehearing before the Fifth Circuit or may seek relief from the Louisiana Supreme Court, the story may not have concluded. Kean Miller will monitor subsequent filings and provide any necessary updates.

A recent 4–3 majority decision [1] from the Louisiana Supreme Court exposes market intermediaries to potential liability for damages caused by products sold by sellers using their platform.  In June 2024, the Louisiana Supreme Court answered two certified questions from the United States District Court for the Western District of Louisiana concerning the liability facing online marketplaces when a product sold on their platform by a third-party causes damage. [2] The Court answered two questions: (1) if an online marketplace operator constitutes a “seller” under the Louisiana Products Liability Act (“LPLA”) and (2) whether an online marketplace operator can be liable under a theory of negligent undertaking. [3]

Plaintiff Archie Pickard (“Pickard”) purchased a battery charger on amazon.com that was sold by a third-party seller identified as “Jisell”.[4] Pickard died when the charger malfunctioned, causing a fire in his home.  Jisell sold the charger on Amazon and, specifically, utilized Amazon’s service known as “Fulfillment by Amazon” in which a seller’s products are sent to a warehouse operated by Amazon for storage and processing.[5]  After receiving a customer’s order, Amazon retrieves the product and delivers it to the buyer.[6]  Importantly, the ownership of products such as the battery charger that are sold through “Fulfillment by Amazon” does not transfer to Amazon, but remains with the seller at all times.[7]

Generally, the LPLA only applies to manufacturers.[8]  However, the LPLA’s scope extends to sellers in two instances: (1) the seller exercises control over a characteristic of the product’s design, construction, or quality; or, (2) the seller operates as a manufacturer’s alter ego in importing and distributing a foreign manufacturer’s product.[9]  The Pickard court found that Amazon was a “seller” as it took “physical custody of the product . . . and controlled the process of the transaction and delivery”.[10]

Turning to the second question, the Court referenced its prior decision in Bujol v. Entergy Services, Inc., applying § 324A of the Restatement of Torts Second as the proper test for determining whether an online marketplace operator is liable for a claim of negligent undertaking.[11]  To assert such a claim, a defendant must assume a duty by an affirmative or positive undertaking.[12]  Upon such a showing, a defendant is liable for a negligent undertaking if one of the following scenarios applies: (1) a change in conditions increased the risk of harm over the level of risk existing prior to the defendant’s involvement; (2) the defendant’s undertaking supplants, not just supplements, another’s duty; or (3) the harm is suffered because of reliance by the plaintiff on the defendant’s undertaking.[13]  Ultimately, the Court referred a determination on whether the facts supported Pickard’s claim for negligent undertaking to the trial court.[14]

Following the Louisiana Supreme Court’s decision in Pickard, marketplace operators should carefully consider their conduct and address whether they are stepping into the shoes of a seller and in turn a manufacturer.  Pickard opens the door for applications of the LPLA to parties, such as marketplace operators, that are not colloquially thought of as product sellers.  But all is not lost on marketplace operators because there are numerous legal tools in the toolbox via La. R.S. § 2800.53(1)(b) and (d) as explained in the Bujol case.  These tools can curtail potential liability and allay some of those fears.

[1] Justice Crain authored the majority opinion with Justices Hughes, Genovese, and McCallum dissenting.

[2] Pickard v. Amazon.com, Inc., 2023-CQ-01596 (6/28/24), 387 So.3d 515.

[3] Id. at 517.

[4] Id. at 518.

[5] Id.

[6] Id.

[7] Id.

[8] La. R.S. 9:2800.52. “This Chapter establishes the exclusive theories of liability for manufacturers for damage caused by their products.”

[9] La. R.S. 9:2800.53(1)(b) and (d). The full text of subsection (d) states “A seller of a product of an alien manufacturer [is a manufacturer] if the seller is in the business of importing or distributing the product for resale and the seller is the alter ego of the alien manufacturer.  The court shall take into consideration the following in determining whether the seller is the alien manufacturer’s alter ego: whether the seller is affiliated with the alien manufacturer by way of common ownership or control; whether the seller assumes or administers product warranty obligations of the alien manufacturer; whether the seller prepares or modifies the product for distribution; or any other relevant evidence.”

[10] 387 So.3d at 523 (citing La. R.S. 9:2800.53(2)).

[11] Id. at 526 (citing Bujol v. Entergy Servs., Inc., 2003-0492 (La. 5/25/04), 922 So.2d 1113); Restatement (Second) of Torts § 324A).

[12] Id. at 525 (citing Bujol, 922 So.2d at 1129).

[13] Id. (citing Bujol, 922 So.2d at 1135, 1136, 1148).

[14] Id. at 526 (citing La. S.Ct. Rule XII, § 8; La. R.S. 72.1A; Wightman v. Ameritas Life Ins. Corp., 22-0364 (La. 10/21/22), 351 So.3d 690, 693).

As a business owner, one of the most important decisions of your business career is the decision to sell your business, and once you make the decision to sell, it can be a long and complicated process. To maximize the value of your business and to minimize obstacles and delays in getting to closing, you should carefully prepare your company for sale and prepare for the challenges which arise in each stage of the sale process.  This article includes suggestions for making those preparations, as well as how to manage the multiple stages of the sale process, all with the aim of achieving a successful closing.

Assemble Your Deal Team

You should assemble a team to manage your sale efforts as early as possible. Your deal team should include:

(1) your company management team of key executives to engage and work with your professional advisors, perform due diligence, and negotiate the transaction documents;

(2) legal counsel to draft and negotiate the transaction documents, coordinate the signing and closing of the transaction, and work with the management team in the due diligence process;

(3) an investment bank, broker, or other financial advisor to identify potential buyers and market the business, value the company, manage the sale process, and prepare the marketing materials and organize the due diligence process; and

(4) accountants (and tax advisor) to assist in preparing your company’s financial statements and financial projections and advise you on your (and your company’s) tax liability related to the transaction.

You should choose legal, financial, and tax advisors who have significant experience with mergers & acquisitions (M&A) transactions.  It is not wise to assume that your company’s general legal counsel and CPA have the expertise necessary to guide you through all of the legal, financial, and tax issues that will arise during the sale process.

Find Your Buyer & Value Your Business

Obviously, finding not only a buyer, but the right buyer, is essential to a successful transaction.  An investment banker, broker, or other financial advisor can assist in identifying potential buyers and marketing your company to maximize the purchase price.  This may include an auction in which multiple potential buyers are invited to bid on your company.  Even if you have already identified a willing and suitable buyer, you should still consider engaging an investment bank or other financial advisor to determine an accurate and realistic value for your company, so that you can negotiate an acceptable purchase price with a buyer.

Your company’s potential buyers will generally come in one of two forms:  (1) “strategic buyers”, which are operating companies which are usually competitors, suppliers, or customers of your company; or (2) “financial buyers”, which are generally private equity firms or venture capital firms looking to purchase your company as an investment.

Each type of buyer has pros and cons, and your financial and legal advisors can help you select a suitable buyer based on your preferences.  For instance, a financial buyer’s offer often includes a requirement that the seller stockholders “roll over” a portion of their existing equity in the target company by exchanging that equity portion for one or more classes of equity in the buyer entity or the buyer’s parent company.  The equity received by the sellers in the rollover can constitute a significant portion of the overall consideration paid to the sellers, which means less cash is paid to the sellers at closing.

Due Diligence & Confidentiality

Before a potential buyer is willing to make an offer to purchase your company, the buyer will want to conduct due diligence of your company in order to gather information and identify issues that are relevant to the acquisition.  Before sharing any of your company’s proprietary or sensitive information, you should require each potential buyer to sign a confidentiality agreement at the outset of discussions to ensure each potential buyer maintains the confidentiality of the negotiations as well as any due diligence information.  You should look to your legal counsel to prepare a proper confidentiality agreement that you can use with each potential buyer.

Also, you should conduct your own due diligence of your company to ensure there are no problems that could delay or otherwise adversely affect the sale, including any corporate, regulatory, or third-party consents that may be required for the sale.  Your legal and financial advisors can guide you in your diligence efforts to help you discover any issues or problems during this stage, so that you have time to either cure any problems or develop negotiating strategies to deal with them.

Letter of Intent

A letter of intent (sometimes referred to as an LOI, memorandum of understanding (MOU), or term sheet) is a letter agreement which is usually entered into early in the sale process, setting forth the parties’ initial understanding of key terms of the deal.  The LOI helps the parties identify deal breakers early in the deal process before the parties incur significant costs.  An LOI is generally not intended to create a legally binding commitment to close the transaction on the terms set out in the LOI, but the parties often include certain binding provisions in the LOI like exclusivity commitments, expense sharing, and confidentiality covenants.

The seller typically wants the LOI to be as detailed as possible because once the LOI has been signed, and especially if the buyer is given exclusivity in the LOI, the leverage in the negotiations shifts to the buyer.  Usually, the letter of intent is drafted by the buyer’s counsel, but the seller should negotiate the LOI carefully with the help of its legal and financial advisors.

A seller should resist earnouts, claw-backs, holdbacks, and large escrows at the LOI stage (and during negotiation of the definitive transaction documents), all of which are commonly proposed by buyers.  In the LOI, a seller should negotiate and include acceptable liability caps, deductibles, and survival periods for seller’s representations and warranties, as well as a narrow set of “fundamental” representation and warranty categories, all of which will be incorporated into the purchase agreement.  If economically feasible for the transaction, a seller should push the buyer to agree at the LOI stage to purchase representation and warranty insurance.

Deal Structure

At the LOI stage, the parties are not always prepared to commit to a transaction structure, but it is wise to select a transaction structure which is advantageous to the seller in the LOI if possible.  Selecting the best structure is critical to the success of your transaction. The three legal structures most commonly used to sell a business are:  (1) asset sale; (2) stock sale; and (3) merger.  Choosing which structure to use involves many factors, and buyers and sellers often have competing interests.

In an asset sale, the buyer acquires specific assets and liabilities of the target company as described in the asset purchase agreement. After the deal closes, the buyer and seller maintain their corporate structures, and the seller retains those assets and liabilities not purchased by the buyer.  Asset sales are often disadvantageous to sellers because the seller is left with known and unknown liabilities not assumed by the buyer, and the seller usually receives better tax treatment when selling stock.  Also, asset acquisitions are typically more complicated and time-consuming than stock acquisitions because of the formalities of assigning specific assets, and the numerous third-party consents which are often required.

In a stock sale, the buyer acquires the target company’s stock directly from the selling stockholders, thus the buyer indirectly acquires all of the target company’s assets, rights, and liabilities.  Sellers often prefer to sell stock since they are not left with any contingent liabilities. In addition, sellers typically receive better tax treatment when selling stock as opposed to assets.

A merger is a stock acquisition in which two companies combine into one legal entity. The surviving entity assumes all assets, rights, and liabilities of the non-surviving entity.  Mergers sometimes require less than unanimous consent from the target company’s stockholders while still allowing the buyer to obtain 100% of the stock, which provides an advantage over a stock acquisition (where usually all of the stockholders must agree to sell).  A merger is therefore a good choice for buyers that want to acquire a going concern that has many stockholders, especially when some of them may be opposed to selling their stock.  However, the corporate laws of most states provide that dissenting stockholders to a merger can petition the court to force the buyer to pay them “fair value” for their shares. This process often adds additional time, complexity, and expense to a merger.

Definitive Agreements, Continued Due Diligence, and Closing

Once you have a signed LOI, the buyer’s counsel usually provides proposed drafts of the purchase agreement and other important transaction documents.  The purchase agreement is the primary transaction document, and it describes what is being sold, details the sale process, and lays out the liabilities and obligations of the parties.  The purchase agreement is usually heavily negotiated over 1-2 months and sometimes longer, depending on the complexity of the transaction and the parties’ respective willingness to compromise.

While the parties are negotiating the purchase agreement and other transaction documents, the buyer continues its due diligence of the target company.  The buyer may use certain information it discovers in the due diligence process to negotiate contractual protections (such as indemnification) in the purchase agreement or to adjust the purchase price.

There is often a period of time between signing the purchase agreement and closing. This may be for legal or practical reasons. For example, the parties may need to obtain regulatory and/or third-party consents for the transaction, but they may not want to pursue such consents until they have a signed purchase agreement.

Purchase agreements for M&A transactions are usually lengthy and complex documents.  Your legal counsel can help you understand your rights and obligations under the purchase agreement and help you negotiate a fair and reasonable agreement so that you can minimize your liability and hold on to your sale proceeds.

Employers nationwide can breathe a collective sigh of relief. On Friday November 15, 2024, District Judge Sean D. Jordan of the federal district court for the Eastern District of Texas granted a motion for summary judgment finding that the Department of Labor’s 2024 Rule – that would have increased the minimum salary level required to qualify executive, administrative, and professional employees for overtime exempt status to $58,565 per year ($1,128 per week) effective January 1, 2025 – is legally invalid. State of Texas v. United States Department of Labor, United States District Court for the Eastern District of Texas, Civil Action No. 4:24-CV-499.

The first phase of the DOL’s 2024 Rule (which went into effect July 1, 2024) that increased the minimum salary level from $35,568 per year ($684 per week) to $43,888 ($844 per week) was also struck down part of the Court’s decision. Judge Jordan found that the DOL’s 2024 Rule exceeded its statutory authority under the federal Fair Labor Standards Act. In reaching this decision, the Court relied on the expanded standard of judicial review of federal agency action announced in the Supreme Court’s recent Loper Bright decision.

The Court’s decision vacating the 2024 Rule pursuant to the federal Administrative Procedures Act applies nationwide. An appeal of the District Court’s ruling to the federal Fifth Circuit Court of Appeals is a possibility, so employers should continue to monitor future developments carefully. But for now, employers can continue to qualify their executive, administrative, and professional employees as overtime exempt (for purposes of the federal Fair Labor Standards Act) at the current annual salary requirement of $35,568 per year ($684 per week).

Louisiana’s Senate Bill 1, introduced during the recent 2024 Third Extraordinary Legislative Session, aims to establish specialized business courts in Louisiana through a state constitutional amendment.  The bill seeks to amend the constitution and give the legislature the authority to create “specialized” courts.  This proposed amendment must first receive two-thirds approval in both the Louisiana Senate and House. If passed, the amendment will appear on voters’ ballots on either March 29th or November 15th of 2025. The legislature would need to then attempt to pass additional laws to create specialized courts designed specifically to handle complex business disputes, such as commercial, corporate, and banking cases, streamlining the process and making it more efficient. Proponents suggest the establishment of business courts could be a significant development for the legal and business communities in Louisiana. Several other states already have similar business courts, including Delaware, New York, Michigan, North Carolina, and Georgia.

For bill text see:  SB1

For related articles see:

Louisiana legislators consider giving themselves the authority to set up ‘business’ court

This Louisiana lawmaker wants a new means of settling business disputes

Louisiana legislators consider giving themselves the authority to set up ‘business’ court • Louisiana Illuminator

Out-of-state defendants are sometimes surprised to learn that their lack of minimum contacts with the forum state is irrelevant if the lawsuit against them is filed as an adversary proceeding in a federal bankruptcy court. For example, a company or individual that has minimum contacts with the United States as a whole, but not with Louisiana specifically, is still subject to the jurisdiction of a United States Bankruptcy Court in Louisiana. A defendant’s motion to dismiss for lack of personal jurisdiction based on having no contacts with the forum state will be denied.

Federal district courts have original jurisdiction over any civil action that is “related to” a bankruptcy case. See 28 U.S.C. § 1334(b). Most, if not all, federal district courts have a Standing Order or Local Rule that refers civil actions related to a bankruptcy case to the federal bankruptcy court where the bankruptcy case is pending. When a civil action is pending in federal bankruptcy court, the Federal Rules of Bankruptcy Procedure (“FRBPs”) apply. The FRBPs incorporate most of the Federal Rules of Civil Procedure, but there are several key differences.

One difference that bankruptcy litigation novices may not be familiar with is FRBP 7004(d), which allows a summons and complaint for an adversary proceeding pending in federal bankruptcy court to be served “anywhere in the United States.” So long as the “exercise of jurisdiction is consistent with the Constitution and the laws of the United States,” the defendant is subject to personal jurisdiction in the federal bankruptcy court where the adversary proceeding is pending. Fed. R. Bankr. P. 7004(f). That is materially different from Federal Rule of Civil Procedure 4’s provision that service of a summons establishes personal jurisdiction over a served defendant only if that defendant “is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located,” i.e., a defendant with minimum contacts in the forum state. Fed. R. Civ. P. 4(k)(1)(A). The key question for a minimum contacts analysis in federal district court — is the defendant subject to jurisdiction of the forum state? — is completely irrelevant in federal bankruptcy court. With nationwide service of process, the forum is the United States. “So minimum contacts with the United States (Fifth Amendment due process) suffice; minimum contacts with a particular state (Fourteenth Amendment due process) are beside the point.” Double Eagle Energy Services, L.L.C. v. MarkWest Utica EMG, L.L.C., 936 F3d 260, 264 (5th Cir. 2019) (citations omitted).

Defendants in adversary proceedings often have many legal defenses available that an experienced bankruptcy lawyer can help them plead and prove. But 99 times out of 100, asserting that the bankruptcy court lacks personal jurisdiction over a defendant will not accomplish anything more than showing that defense counsel has very little experience with bankruptcy litigation.

Mineral Leases in Louisiana are typically granted for a stipulated length of time, known as the primary term, and for so long thereafter as production in paying quantities continues.  As production commences and a mineral lease is extended beyond its primary term, various common issues often arise, many of which are briefly discussed below:

Lease Maintenance

When considering the maintenance of mineral lease beyond the primary term, we typically examine the production history to ensure there has been production in paying quantities to maintain the lease and review whether the lease includes a Pugh Clause and/or Automatic Depth Termination Provision. 

Production in Paying Quantities – In order to effectively maintain a mineral lease beyond its primary term with production of oil or gas, such production must be in paying quantities.[1]  If production is not in paying quantities, a mineral lease will automatically terminate in the absence of some other method of maintenance, like additional operations.  Production is in paying quantities when it is sufficient to “induce a reasonably prudent operator to continue production in an effort to secure a return on his investment or to minimize any loss”.[2]  When litigated, paying quantities analyses are often fact-intensive and tedious. 

Pugh Clause – modern mineral leases will often include a “Pugh Clause”, pursuant to which unit production or unit operations will only maintain the leased premises as to the acreage contained within such unit.  It is important to note that not all Pugh Clauses are uniform in their application and each provision should be analyzed independently along with the operational and production history of the leased premises and lands unitized therewith to assess lease maintenance.

Automatic Depth Termination Provision –Automatic depth termination provisions commonly result in automatic termination of the depths below and/or above a certain point (e.g. productive strata or the deepest depth penetrated by a well on the leased premises or lands unitized therewith), based on a specific date.  These provisions are important to consider for a lessee that is interested in developing intervals that are not unitized in a common zone.   Additionally, automatic depth termination provisions and Pugh Clauses are important because they may result in partial lease termination, which can trigger release obligations, discussed below.

Further Development

Louisiana’s mineral code recognizes various implied obligations in mineral leases, one of which is the lessee’s duty to develop and operate the leased premises as a reasonably prudent operator for the mutual benefit of himself and his lessor.[3]  One iteration of this implied obligation is that, after initial production in paying quantities has been established, the lessee must further develop the premises, to the extent a reasonably prudent operator would so develop after considering (1) geological data, (2) number and location of wells drilled (3) productive capacity of wells, (4) cost of drilling operations (5) time interval between completion of the last well and the demand for additional operations, and (6) acreage involved in the disputed lease.[4]    In making further development demands, mineral lessors often seek partial cancellation of the mineral lease at issue.  Fortunately, there are a number of negotiation methods that a lessee can utilize to resolve further development demands.  Additionally, the inclusion of a Pugh Clause and/or an Automatic Depth Termination Provision further mitigates the risk of a development demand and should be considered by lessees who believe the administrative burden of managing their leasehold outside of the productive depths outweighs the benefits of maintaining their leasehold to such depths.

Further development demands are not unique to private mineral lessors.  The Office of Mineral Resources staff conducts routine reviews of many of the older mineral leases granted by the State of Louisiana to occasionally recommend to the State Mineral and Energy Board that a demand for a partial release/further development should be made.  These demands often involve older mineral leases covering large acreage with no Pugh Clause and a modest lessor royalty.  Such demands can often be resolved by meeting with the staff at the Office of Mineral Resources and/or presenting plans of development or other information to the State Mineral and Energy Board at its public meeting. 

Demand for Written Release of a Terminated Mineral Lease

After a mineral lease terminates, either wholly or in part, the mineral code authorizes the lessor to make demand on the lessee for a recordable release of the expired lease.[5]  If the lessee fails to provide the release within 30 days (if the relevant lease is beyond the primary term) from receipt of the demand, then the lessee may be liable for resulting damages and reasonable attorneys fees in bringing suit.[6]  Additionally, certain custom mineral lease forms impose a daily monetary penalty for the lessee’s failure to provide a written release when a mineral lease expires.  Accordingly, written demands for release of a purportedly expired mineral lease should be promptly addressed by the lessee.

Surface/Subsurface Rights

Mineral leases commonly grant the lessee the right to use the surface and subsurface of the leased premises for drilling one or more wells.  On occasion, unit wells are drilled from a surface location on the leased premises, but outside of the unit boundary. When a mineral lease contains a Pugh Clause and the lease expires as to the non-unitized premises containing the surface location and wellbore, the operator of the well may be without the right to use the surface location and be at risk of trespassing.  

To mitigate the risk of such rights expiring, lessees will often include a subsurface and surface servitude within a mineral lease that is stipulated to survive lease termination.  Alternatively, an operator using a non-unitized surface location should enter into a separate surface use agreement authorizing its operations in the event the associated mineral lease terminates as to the surface location.

[1] La. R.S. 31:124

[2] Id.

[3] La. R.S. 31:122

[4] Ferrara v. Questar Exploration and Production Co., 70 So.3d 974 (La. App. 2 Cir. 6/29/11)

[5] La. R.S. 31:206.

[6] La. R.S. 31:207.

Late last month, the U.S. Eastern District of New York dismissed a suit by the U.S. Environmental Protection Agency (“EPA”) against eBay claiming that it sold products that are prohibited under federal environmental statutes.[1] The Court held that eBay is not a “seller” of prohibited products under either the Clean Air Act (“CAA”) or the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”). Although the Court found that eBay could be liable as a “seller” under the Toxic Substances Control Act (“TSCA”), it held that eBay is immune to TSCA claims as a “publisher” for third-party content under Section 230 of the Communications Decency Act (“CDA”) of 1996.

Liability for Marketplace Platforms Under CAA, FIFRA, and TSCA

The EPA sought to hold eBay liable under the CAA for the sale of “aftermarket defeat products,” which bypass a vehicle’s emissions controls. See Section 203(a)(3)(B) of the Clean Air Act. Because those products were available for sale on eBay’s website, it met the definition of a “seller” under the CAA. Similarly, EPA alleged that eBay violated FIFRA’s prohibition on unlawful distribution or sale of unregistered, misbranded, and restricted use pesticides for allowing those products to be available on its platform. See Sections 3 and 12 of FIFRA.[2] Although neither statute defines the terms “sell” or “sale,” the Court applied an ordinary definition of the terms and found that to be a seller, eBay would have to actually own or possess the physical item being sold.[3] The Court determined that as a marketplace platform service, eBay did not actually own or possess the physical items.[4]

Specifically in relation to EPA’s CAA claims, the Court also analyzed eBay’s support functions for sellers like marketing, creating product listings, directing customers towards products, and ensuring customer satisfaction. EPA argued these ancillary services violated the CAA because they “cause the sale or offer for sale of” prohibited products. The Court concluded instead that although eBay creates a forum in which buyers and sellers can transact more efficiently, eBay’s services “do[] not ‘induce[] anyone to post any particular listing or express a preference for’ Aftermarket Defeat Devices.”[5]

On the other hand, the Court held that eBay could be liable under the TSCA because it restricts a wider range of conduct than either the CAA or FIFRA. Significantly, TSCA prohibits a seller from introducing or delivering any banned product “for introduction into commerce.”[6] Thus, even though eBay was not “selling” the banned paint-strippers under the Court’s interpretation, eBay’s contribution to the transaction could impose TSCA liability. But the Court ultimately found eBay is immune under Section 230 of the CDA.

CDA Immunity

Section 230 of the CDA protects online service providers and users from being held liable for information shared on the platform by users or third parties. The Court found that the CDA protections also extend to website platforms that connect buyers and sellers of physical goods, such as eBay, unless the platform “materially contributes” to a product’s unlawful status. Thus, the Court held that eBay is immune to TSCA liability under Section 230 because it is “[a]n interactive computer service” and it does not actively “assist in the development of what made the content unlawful.”[7]

EPA argued that eBay is not protected by the CDA because it only shields companies from liability for their speech and does not address transactions. But the Court rejected this argument, holding that Section 230 is interpreted broadly enough to cover eBay’s role in the transaction.[8] Although the Court only addressed CDA immunity for EPA’s TSCA claim, the immunity could be similarly applied to defeat other statutory claims.

Impacts

The decision serves as a roadblock to EPA efforts to hold marketplace platforms liable for the sale of prohibited goods when sold by third-party sellers. It also signals that courts could apply a strict reading of the “seller” provisions of environmental statutes, such as the CAA and FIFRA, to only those entities that actually “possess” a potentially noncompliant product. Thus, a third-party seller may be the only party that has a duty to ensure compliance with CAA and FIFRA restrictions for products sold on a marketplace platform. And even if an environmental statute, such as TSCA, applies more broadly to other support functions performed by a marketplace platform, a web-based platform may still be immune to claims through the CDA Section 230 immunity provisions.

[1] United States of America v. eBay Inc., 23 Civ. 7173, 2024 WL 4350523 (E.D.N.Y. Sept. 30, 2024).

[2] See also 7 U.S.C. § 136a(a); 7 U.S.C. § 136j(a)(l)(A), (a)(1)(E), (a)(1)(F).

[3] eBay, slip op. at 5, 7.

[4] Id. at 9 (citing Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010) in which the Second Circuit found that eBay was not a “seller” in the context of a trademark infringement claim).

[5] Id. at 11 (quoting Chi. Lawyers’ Comm. For C.R. Under L., Inc. v. Craigslist, Inc., 519 F.3d 666, 671-672 (7th Cir. 2008), as amended (May 2, 2008)).

[6] 15 U.S.C. § 2602(5).

[7] Ratermann v. Pierre Fabre USA, Inc., 651 F. Supp. 3d 657, 667 (S.D.N.Y. 2023); see also Fed. Trade Comm’n v. LeadClick Media, LLC, 838 F.3d 158, 173 (2d Cir. 2016).

[8] See EPA Memorandum in Opposition to Motion to Dismiss, p. 24.

In a case of first impression, the U.S. 5th Circuit recently held that the Louisiana Oilfield Anti-Indemnity Act (LOAIA) does not contain a universal well requirement.

Louisiana is only one of four states that has passed an oilfield anti-indemnity act. Enacted in 1981, the LOAIA renders “null, void and unenforceable” certain indemnification provisions in “agreement[s] pertaining to a well for oil, gas, or water, or drilling for minerals which occur in a solid, liquid, gaseous, or other state.” The Louisiana Supreme Court has explained that the LOAIA “arose out of a concern about the unequal bargaining power of oil companies and contractors and was an attempt to avoid adhesionary contracts under which contractors would have no choice but to agree to indemnify the oil company, lest they risk losing the contract.”

Traditionally, Louisiana courts have engaged in a two-step test to determine the applicability of the LOAIA. First, there must be an agreement that “pertains to” an oil, gas, or water well. Second, the agreement must be related to the exploration, development, production, or transportation of oil, gas, or water.

However, in QBE Syndicate 1036 v. Compass Minerals Louisiana, 95 F.4th 984 (5th Cir. 2024), the 5th Circuit Court, in a unanimous decision written by Judge Higginson, clarified the scope of the LOAIA and held that the rule that an agreement must pertain to a well only applies if the agreement does not otherwise pertain to “drilling for minerals.” In other words, only if a party is invoking the ‘wells for oil, gas, or water’ clause does it need to show a nexus to a well.”

The case involved the death of a contractor at the Cote Blanche salt mine in St. Mary Parish, which was owned and operated by Compass Minerals Louisiana. QBE, the insurer of two local companies that contracted to perform fire prevention and electrical support at the salt mine, brought a declaratory judgment action in the Western District of Louisiana seeking a judgment that the LOAIA invalidated the indemnity and additional insured provisions in the contract between Compass and the contractors. Specifically, QBE argued that Compass used a “drill-and-blast mining method” at the salt mine which constituted “drilling for minerals” under the LOAIA. The district court rejected QBE’s argument and ruled that the LOAIA only applied to agreements “pertaining to a well” and that it is undisputed that the mining operations at the salt mine did not involve a well.

On appeal, the Fifth Circuit recognized that prior panels have stated “in broad terms” that the LOAIA requires an agreement to pertain to a well. However, the Court noted that neither the Fifth Circuit nor the Louisiana Supreme Court has addressed the question in this case – specifically, does the LOAIA applies to only those contracts that “pertain to a well,” even if those agreements involve “drilling for minerals”? The Fifth Circuit made an Erie guess and held “[a]n agreement that ‘pertain[s] to … drilling for minerals’ need not also pertain to a well.” As such, the Fifth Circuit reversed the district court’s ruling and remanded to the district court to determine if the agreements in the case pertain to drilling for minerals.