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By Gibbons Addison

On December 8, 2015 the Louisiana Supreme Court attempted to clarify the manifest error appellate review standard. Hayes Fund for the First United Methodist Church of Welsh, LLC v. Kerr McGee Rocky Mountain, LLC, 2014-2592 (La. 12/8/15); — So. 3d –, pitted plaintiff mineral royalty owners against mineral lessee and working interest owner defendants in a dispute over whether the defendants mismanaged and improperly operated two oil and gas wells, causing the plaintiffs lost royalties. The case centered on the testimony and opinions of the experts, with the plaintiffs presenting a single expert to prove that defendants’ actions in drilling and operating the two wells prematurely caused production of water, rather than oil and gas, and therefore resulted in millions of dollars in lost royalties. The defendants called nine witnesses, including five experts, to establish that the water production was not the result of unreasonable or imprudent practices. The district court, after hearing twenty-five days of testimony and receiving hundreds of pages of post-trial memoranda, ruled in favor of the defendants. The district court relied on defendants’ experts in concluding that the plaintiffs failed to prove the defendants’ actions caused diminished oil and gas production.

Whether the defendants’ actions caused the plaintiffs damages is a question of fact, only to be reversed in the event of manifest error. The Louisiana Third Circuit Court of Appeal found such error, reversed the district court’s judgment, and rendered a judgment of $13,437,895 for plaintiffs. The Supreme Court reversed the Third Circuit, and exhaustively explained in a sixty-eight page decision why the manifest error standard was not met. The main takeaways from the Supreme Court opinion are as follows: the manifest error standard precludes setting aside a trial court’s finding of fact unless the finding is clearly wrong in light of the record reviewed in its entirety. Accordingly, a reviewing court’s decision is not to be based on whether it merely would have found the facts differently. The question is whether the fact-finding conclusion was reasonable, not whether the trial judge or jury was right or wrong. When two permissible views exist, the fact-finder’s selection between them is not clearly wrong or manifestly erroneous.

The Supreme Court undertook an extensive review of the trial court record to determine whether it reasonably supported the district court’s factual findings and the determination that plaintiffs failed to prove their case. The record reasonably supported the district court’s conclusion, and the record did not show clear error in the district court’s choice of defendants’ experts as more credible than plaintiffs’ expert. The function of the court of appeal is to correct errors, not to pick one of many permissible views of the evidence. By making its choice of evidence, the Third Circuit wrongly applied the manifest error standard.

Through its Hayes Fund opinion, the Supreme Court invited the intermediate appellate courts and litigators to properly apply the manifest error standard. Satisfaction of Hayes Fund’s precepts will be crucial to success in appealing and defending trial court fact determinations going forward.