STATE OF LOUISIANA COURT OF APPEAL, THIRD CIRCUIT
CA 08-452
CIMAREX ENERGY CO., ET AL.
VERSUS
KATHERINE D. MAUBOULES, ET AL.
**********
APPEAL FROM THE FIFTEENTH JUDICIAL DISTRICT COURT PARISH OF VERMILION, NO. 82679 - I HONORABLE THOMAS R. DUPLANTIER, DISTRICT JUDGE
JOHN D. SAUNDERS JUDGE
Court composed of John D. Saunders, Oswald A. Decuir, and Elizabeth A. Pickett, Judges.
AFFIRMED AS AMENDED.
Kerry Alan Kilburn Kilburn Law Firm, PLLC 6363 Woodway, #750 Houston, TX 77057-1796 (713) 974-1333 Counsel for Intervenor Appellee: Orange River Royalties, LLP Coyote Ventures, Ltd. Mission Royalty Income 2002-A, LP Homer Edward Barousse, Jr. Barousse & Craton P. O. Box 1305 Crowley, LA 70527-1305 (337) 785-1000 Counsel for Defendant Appellee: Florence Mauboules
Don Ray Beard Attorney at Law 318 St. Charles St. Baton Rouge, LA 70802 (000) 000-0000 Counsel for Plaintiff Appellant: Cimarex Energy Co. Ceniarth, Ltd.
Robert L. Cabes Milling, Benson, et al P. O. Box 51327 Lafayette, LA 70505-1327 (337) 232-3929 Counsel for Defendant Appellant: Palace Exploration Co.
William Howard Collier Ringuet, Daniels & Collier P. O. Box 52647 Lafayette, LA 70505 (337) 232-0002 Counsel for Intervenor Appellee: Mission Royalty Income 2002-A, LP Orange River Royalties, LLP Coyote Ventures, Ltd.
Margaret D. Swords Longman Russo P. O. Drawer 3408 Lafayette, LA 70508-3408 (337) 262-9000 Counsel for Defendant Appellee: Patrick and Kathy Mauboules
John Weir Grant Attorney at Law P. O. Drawer 52604 Lafayette, LA 70505-2604 (337) 234-3777 Counsel for Defendant Appellee: Miocene Oil & Gas, Inc.
Francis X. Neuner, Jr. Laborde & Neuner P.O. Box 52828 Lafayette, LA 70505-2828 (337) 237-7000 Counsel for Intervenor Appellee: Orange River Royalties, LLP Joe Barrelle Norman Liskow & Lewis 701 Poydras St., #5000 New Orleans, LA 70139-5099 (504) 581-7979 Counsel for Plaintiff Appellant: Ceniarth, Ltd. Cimarex Energy Co.
Randall Charles Songy Onebane Law Firm P. O. Box 3507 Lafayette, LA 70502-3507 (337) 237-2600 Counsel for Other: Louisiana Oil and Gas Association
George Jeanmard Tate Attorney at Law P. O. Box 817 Abbeville, LA 70511-0817 (337) 893-8335 Counsel for Defendant Appellant: Zeneco, Inc.
Steven Bernard Rabalais Rabalais, Hanna 701 Robley Drive, #210 Lafayette, LA 70503 (337) 981-0309 Counsel for Defendant Appellee: Essex Royalty Joint Venture II
Cheryl Mollere Kornick Attorney at Law 701 Poydras Street, Suite 5000 New Orleans, LA 70139-5099 (504) 581-7979 Counsel for Plaintiff Appellant: Ceniarth, Ltd. Cimarex Energy Co.
J. Clemille Simon Attorney at Law P. O. Box 52242 Lafayette, LA 70505 (337) 232-2000 Counsel for Intervenor Appellee: Ereunaco Oil
Barry Louis Domingue Simon Law Offices P. O. Box 52242 Lafayette, LA 70505 (337) 232-2000 Counsel for Intervenor Appellee: Ereunaco Oil Michael Howard Landry Attorney at Law P. O. Box 1368 Crowley, LA 70527-1368 (000) 000-0000 Counsel for Defendant Appellee: Jack W. Larimer Cimarex Energy Co. Floyd Trahan Valerie Mocek Trahan
Kyle M. Bacon Longman Russo P. O. Box 3408 Lafayette, LA 70502-3408 (337) 262-9000 Counsel for Defendant Appellee: Patrick and Kathy Mauboules
Matthew R. Lynch Milling, Benson, Woodward P. O. Box 51327 Lafayette, LA 7005-1327 (337) 233-3929 Counsel for Defendant Appellant: Palace Exploration Co.
Jed Mestayer Laborde & Neuner P. O. Drawer 52828 Lafayette, LA 70705-2828 (337) 237-7000 Counsel for Intervenor Appellee: Orange River Royalties, LLP
Collette Ross Gordon Liskow & Lewis, PLC 701 Poydras St., Suite 5000 New Orleans, LA 70139-5099 (504) 581-7979 Counsel for Plaintiff Appellant: Cimarex Energy Co. Ceniarth, Ltd.
Diversified Energy Investments Jack W. Larimer
John Michael Gottesman Essex Royalty Joint Venture II SAUNDERS, Judge.
FACTS AND PROCEDURAL HISTORY:
This appeal arises from an Amended Final Judgment by the Fifteenth
Judicial District Court, in which the trial court found that Appellants1 (hereinafter
collectively referred to as “Cimarex”) brought a concursus proceeding, under
La.Code Civ.P. art. 4658, without having a legitimate basis to do so, thereby
unreasonably withholding royalty payments from Appellees2 (hereinafter
collectively referred to as “Orange River”). A review of the facts leading up to this
appeal is instructive.
In 1997, Katherine Daigle Mauboules and other members of her family sold
royalty interests in their land to Ereunao Oil & Gas, Inc. (hereinafter “Ereunao”).
This royalty deed contained an “Off Tract Production Clause” that would later
become the source of Mauboules’ assertion that she might be entitled to the
royalty interests she had sold to Ereunao. Years after Ereunao’s purchase of
royalty interest from Mauboules, Orange River made three different purchases of
royalty interests from Ereunao’s assignees, Lawrence and Lorena Brock, in April
2004, August 2004, and February 2005.
Meanwhile, during February of 2003, Cimarex acquired a mineral lease
from Maboules and drilled a well, which began production in January 2004. The
Cimarex lease agreement had been reached after a year of unsuccessful
negotiations with Mauboules and only after the addition of three key provisions:
1 Appellants-Defendants in Reconvention are: Cimarex Energy Co., Ceniarth, Ltd., Palace Exploration Company and Zeneco, Inc. (f/k/a RZ, Inc. of Oklahoma). 2 Appellees-Plaintiffs in Reconvention are: Orange River Royalties, LLP; Mission Royalty Income 2002-A, L.P.; MRHC, LLC; Charles P. Torrey, Jr.; Royalty Quest, LLC; Forst Worth Operating Company, L.L.C.; Richard Martter; Coyote Ventures, LTD, and Essex Royalty Joint Venture, II. (1) Cimarex would pay Kenneth Privat (hereinafter “Privat”), Maboules’ attorney,
$7,500.00 in legal fees to offset future legal expenses incurred by filing suit
against a royalty purchaser known as Ereunao Oil & Gas, Inc. et. al. ; (2) Cimarex
would place the royalties in suspense until the suit against Ereunao was over; and
(3) Cimarex would pay Maboules $75,000.00 if (a) her lawsuit against Ereunao
was unsuccessful and (b) a successful well was drilled and the well reached 150%
payout.
On March 26, 2004, Privat sent Cimarex a letter, claiming that Ereunao’s
royalty interest had prescribed. In a follow-up phone conversation, Privat spoke to
Cimarex attorneys and asserted that a clause in the Maboules-Ereunao deed might
have been procured by fraud. On June 9, 2004, Cimarex advised Orange River that
Cimarex would be suspending Orange River’s royalty payments. Later, on
November 16, 2004, Orange River’s attorney, Kerry Kilburn (hereinafter
“Kilburn”) made written demand for payment. In his letter, Mr. Kilburn noted that
Orange River is a, “good faith purchase[r] relying on the public record for the
validity of [its] title and there can be no reasonable claim against [Orange River]
by the Mauboules Family members.” On December 20, 2004, a little over a month
after Orange River’s demand, Cimarex filed the concursus proceeding which
forms the central focus of this appeal.
In that proceeding, the trial court made a factual finding that Cimarex had
no legitimate basis on which to file a concursus and rendered judgment, awarding
damages to Orange River. Cimarex appeals, asserting five assignments of error.
ASSIGNMENTS OF ERROR:
1. Must a stakeholder in a concursus proceeding have a legitimate basis to
bring the concursus proceeding?
2 2. Does La.Code Civ.P. art. 4658 provide stakeholders in a concursus with
absolute immunity from liability related to alleged nonpayment of funds
deposited into the registry of the court?
3. Did the trial court correctly calculate “double” damages for purposes of
Mineral Code Article 212.23(C)?
4. Did the trial court correctly calculate the date from which judicial interest
became due on statutory damages awarded pursuant to Mineral Code Article
212.23(C)?
5. Must a royalty owner provide notice to the working interest owner before
the royalty owner may seek a judicial award of penalties under Mineral
Code Article 212.23?
ASSIGNMENT OF ERROR #1:
Cimarex asserts that Mauboules’ claim against Ereunao was sufficient to
form the legitimate basis of a concursus proceeding, which would prevent Orange
River from receiving its royalty payments timely. We disagree.
“The purpose of a concursus proceeding is equitable in nature, meaning to
protect a person finding himself in possession of money which is not his from
having to referee the rights of rival claimants and risk paying same to the wrong
party.” Bank of Sunset & Trust Co. v. A.J. Charlot, 614 So.2d 1386, 1388 (citing
Transo Investment Corporation v. Oakley, 37 So.2d 560 (La.App. 2 Cir. 1948).
Furthermore, concursus proceedings developed “in order to curtail lengthy,
vexatious and expensive litigations.” Leon Sarpy, Concursus: Interpleader in
Louisiana, 35 Tul. L. Rev. (1961). For that reason, our supreme court has
encouraged the institution of concursus proceedings, even when the competing
claim is “an inchoate interest in. . . royalties,” but only if the plaintiff “actually
3 fear[s] that the payment [to another] might be hazardous.” Irion v. Standard Oil
Co. of Louisiana, 199 La. 363, 371, 6 So.2d 143, 146 (1942) (emphasis added).
The requirement of an actual concern exists, lest the concursus itself become
“vexatious,” thereby re-creating the problem it was designed to remedy.
The trial court found that Cimarex failed to meet the minimum threshold for
initiating a concursus proceeding. Cimarex’s concursus proceeding was
orchestrated as a condition to Mauboules granting Cimarex a mineral lease, rather
than as a result of an actual concern about a competing claim.
This case is similar to another case involving a baseless concursus
proceeding, that being Bank of Sunset & Trust Co. v. A.J. Charlot, 614 So.2d 1386
(La.App. 3 Cir. 1993). In Bank of Sunset & Trust Co., this court found that a bank
presented with a foreign judgment that had not been made executory in Louisiana
was not presented with a legal competing claim, but rather was confronted with
“nothing more than a man off the street. . .who said, I have a claim. . ..” Id. at
1388. In that case, we noted that “with a little cursory examination and
investigation. . .the bank would have alerted itself. . .that. . .the judgment. . .[was]
nothing more than a man off the street.” We then defined the “threshold element
for the initiation of a concursus proceeding” to be “the existence of at least two
persons who have competing or conflicting claims to money.” Id. at 1388-89.
Cimarex points out, in brief, that it was advised to institute the concursus by
its attorney, an oil and gas lawyer with over thirty years experience practicing law.
Cimarex asserts that their attorney had no way of “going behind” the Maboules’
claim to test its legitimacy. However, the record indicates that Cimarex did not
advise its attorney of the special agreement with Mauboules, nor of the extensive
history with Mauboules’ amorphous claim. The “clean hands doctrine” states: “He
4 who comes into a court of equity must come with clean hands.”
This doctrine universally affects the entire administration of equity jurisprudence as a system of remedies and remedial rights.
It is likewise fundamental that equity imperatively demands of suitors in its courts fair dealing and righteous conduct with reference to the matters concerning which they seek relief. One who has resorted to injustice, unfairness and unrighteous dealing, which it is the purpose of courts of equity to supress, will appeal in vain, even though in his wrongdoing he may have kept himself strictly within the law. Manifestly, under this maxim any act which would be condemned and pronounced wrongful by honest and fair-minded men must be held sufficient to make the hands of one who seeks equity unclean.
City of New Orleans v. Levy, 233 La. 844, 864, 98 So.2d 210, 218 (1957). Cimarex
may have sought to keep itself “strictly within the law” by seeking an attorney’s
opinion which would advise the filing of concursus proceedings. However,
Cimarex cannot expect to shield itself with an attorney’s opinion made with
incomplete information.
Cimarex repeatedly argues in brief that the possibility that a claim may be
asserted against it by Mauboules justifies non-payment. Nowhere does Cimarex
suggest how the Mauboules’ assertion could present a claim that would challenge,
much less defeat, Orange River’s royalty interest and the public records doctrine.
Cimarex argues that Louisiana has a strong concursus doctrine. This is true. It is
also true that Louisiana has a strong public records doctrine.
The public records doctrine and its basic principles of recordation are set
forth in La.Civ.Code art. 33383 and 3342, “which protect third persons from the
3 Louisiana Civil Code Article 3338 -
The rights and obligations established or created by the following written instruments are without effect as to a third person unless the instrument is registered by recording it in the appropriate mortgage or conveyance records pursuant to the provisions of this Title:
5 effect of unrecorded instruments affecting real estate and attempts to vary the
terms or statements of fact in recorded instruments.” 1 Peter S. Title, Louisiana
Real Estate Transactions § 8:26 (2d ed. 2008). A cursory examination of the
information already in Cimarex’s possession would have shown that any claim by
Mauboules would not affect Orange River’s royalty interests because Orange
River was a third party which relied on the public records4 and acquired “an
interest in an immovable [and] is [therefore] protected from the effects of the
nullity or dissolution of a contract that adversely affects [its] interest.” Id. By
contacting Cimarex with claims of possible fraud and prescription against
Ereunao, Mauboules, through her attorney, Privat, was attempting to do precisely
that which La.Civ.Code art. 3342 prohibits. Louisiana Civil Code Article 3342
specifically says,
A party to a recorded instrument may not contradict the terms of the instrument or statements of fact it contains to the prejudice of a third person who after its recordation acquires an interest in or over the immovable to which the instrument relates.
It follows that in order to justify its defense, Cimarex must advance a
reasonable basis to fear that payment to Orange River would not be protected by
the public records doctrine. We have searched the voluminous record for such a
theory of justification. We have found none. We asked for such justification at oral
(1) An instrument that transfers an immovable or establishes a real right in or over an immovable. (2) The lease of an immovable. (3) An option or right of first refusal, or a contract to buy, sell, or lease an immovable or to establish a real right in or over an immovable. (4) An instrument that modifies, terminates, or transfers the rights created or evidenced by the instruments described in Subparagraphs (1) through (3) of this Article.
4 The Louisian Supreme Court, in Brown v. Sugar Creek Syndicate, 195 La. 865, 892, 197 So.2d 583, 592 (1940), noted that, “royalty owners who acquired their rights on the faith of the public records. . .are obviously protected [from claims of landowners that recorded agreement was invald].”
6 argument. None was forthcoming. If such a theory exists, it has not yet been
brought to the attention of this court. The absence of such an explanation is fatal to
the defense. Had Mauboules not sold her royalty interests and had it not been a
matter of public record, the Mauboules claim, however weak and ill articulated,
might have formed a reasonable basis for the concursus. However, that is not what
has occurred, and it is not the situation presented to this court. This court must
face the issue of whether any reasonable basis for non-payment to Orange River
ever existed. We have found none.
Thus, even if Mauboules had an ironclad claim against Ereunao in terms of
the agreement between those two parties, it would have had no effect, whatsoever,
on Orange River. In order to file a valid concursus, Cimarex needed to show that
Mauboules had a competing claim against Orange River. They make no attempt to
do this. The Orange River claim is fully supported by the public records and the
public records doctrine. Nowhere in the record before us does anyone make any
assertion which could form a legal challenge to Orange River’s rights. While this
leaves the possibility that the Mauboules may have a damage claim against
Ereunao for fraud or something else, Mauboules has no claim for the money that is
due Orange River. Mauboules, at best, indicates that she may make a claim of
some sort against an ancestor in title. This cannot form the basis of a valid
concursus in this case.
“Appellate courts review the trial court’s findings of fact under a ‘manifest
error’ or ‘clearly wrong’ standard.” Rosell v. ESCO, 549 So.2d 840, 844
(La.1989). The trial court made a factual finding that Cimarex failed to meet the
threshold element required to institute a concursus . After reviewing the facts in
the record, we find no manifest error in this instance.
7 ASSIGNMENT OF ERROR #2:
Cimarex asserts that the trial court erred in awarding Orange River damages
pursuant to La.R.S. 31:212.23(C), because La.Code Civ.P. art. 4658 provides
immunity to all who institute concursus proceedings. We disagree.
Louisiana Code of Civil Procedure Article 4658 provides: With leave of court, the plaintiff may deposit into the registry of the court money which is claimed by the defendants, and which plaintiff admits is due one or more of the defendants.
When sums of money due one or more of the defendants accrue from time to time in the hands of the plaintiff after the institution of the proceeding, with leave of court he may deposit the money as it accrues into the registry of the court.
After the deposit of money into the registry of the court, the plaintiff is relieved of all liability to all of the defendants for the money so deposited. (emphasis added)
Yet, a party who institutes a concursus when it knows or should know that the
claim he is presented with has no legal efficacy, at least in terms of a competing
claim, cannot invoke the protection provided for in La.Code Civ.P. art. 4658, thus
impairing the rights of a third party in good faith. To allow concursus to be abused
in this way would make a mockery of the judicial system, undermine Louisiana’s
public records doctrine, and affect the stability of contracts made in this state.
As decided by this court in Bank of Sunset & Trust Co., 614 So.2d 1386,
where the plaintiff fails to meet the threshold for initiating a concursus proceeding,
damages may be awarded, and the immunity provided for in La.Code Civ.P. art.
4658 is not available. In Bank of Sunset & Trust Co., we awarded damages for the
frivolous appeal of a trial court’s dismissal of a baseless concursus. Likewise, we
feel it would be appropriate here to give full meaning to the statutory remedy 8 provided for in the Mineral Code La.R.S. 31:212.23(C).
Louisiana Revised Statutes 31:212.23(C) provides:
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.
Cimarex suspended royalty payments to Orange River on March 26, 2004,
long before instituting the concursus and months before notifying Orange River of
the suspension. The trial court made a factual finding that Cimarex (1) failed to
make timely payments, (2) failed to pay in response to the notice of failure to pay5,
and (3) failed to state a reasonable cause for failure to pay. Because Cimarex could
not state a reasonable cause for and withholding royalty payments from Orange
River or for instituting a concursus proceeding, Cimarex is subject to damages as
described above. Finding no manifest error in the trial court’s determination, we
affirm the trial court’s ruling that damages should be awarded under La.R.S.
31:212.23(C).
ASSIGNMENT OF ERROR #3:
Next, Cimarex challenges the trial court’s award of damages as being in
excess of the amount contemplated by La.R.S. 31:212.23(C), which provides, in
pertinent part, that “the court may award as damages double the amount due . . ..”
We find this challenge has no merit.
The royalties owed to Orange River are not damages but merely a sum of
money that would be owed to Orange River in any event, as Orange River is the
rightful owner of those royalty interests. The Mineral Code, as cited above, plainly
5 Orange River gave Cimarex written notice of failure to pay on November 16, 2004.
9 states that the court may award double the amount due as damages. Thus, the
obligor, in addition to owing the unpaid royalties, would pay an additional sum as
damages to the obligee. This method of calculation was affirmed in Wegman v.
Central Transmission, Inc., 499 So.2d 436 (La. App. 2 Cir. 1986), when the
Second Circuit Court of Appeal of Louisiana noted that the trial judge was correct
in “doubling the damages and adding that sum to the amount of royalties due.” Id.
at 451. Accordingly, we affirm the trial court’s calculation of damages.
ASSIGNMENT OF ERROR #4:
Cimarex asserts the trial court erred in finding that interest on the damages
awarded under La. R.S. 31:212.23(C) began to accrue from the date of judicial
demand, rather than from the date of judgment. We disagree.
Cimarex argues that the trial court’s decision was contrary to law. It cites
minimal authority for its position, namely Wegman, 499 So.2d 436, and
DeLaughter v. Borden Co., 431 F.2d 1354 (La.App. 5 Cir. 1970). In Wegman, our
second circuit did not speak to the date of when interest on statutory damages
begins to accrue, it merely upheld the lower court’s judgment awarding damages
in that case. Thus, Cimarex’s reliance on Wegman is unfounded.
In DeLaughter, the U.S. Fifth Circuit recognized that interest was not
necessarily owed on the trebled portion of a judgment in that particular case under
La.R.S. 13:4203. Like Wegman, the DeLaughter court did not speak to the point in
time at which interest begins to accrue on statutory damages awarded. As such, as
with Wegman, Cimarex’s reliance on DeLaughter is misguided.
We do note that there are instances where interest on statutory damages
does not begin to accrue until the date of judgment. For example, see Sharbono v.
Steve Lang & Sons Loggers, 97-110 (La. 7/1/97), 696 So.2d 1382, where our
10 supreme court discussed interest on statutory penalties awarded in the workers’
compensation setting.
The case before us is in a different setting than that of workers’
compensation. Here, we are dealing with statutory damages awarded when a party
breaches a contract. Cimarex, as an obligor, failed to pay its obligee timely.
Generally, “[i]n contract law, the right to damages for delay accrues on the day of
the demand.” Franco Ferrari, Comparative Ruminations on the Foreseeability of
Damages in Contract 53 La. L. Rev. 1257, 1260 (1993).
In French law, this principle has resulted in the imposition of the mise en demeure, or formal “putting in default” of the obligor, as a necessary prerequisite to the recovery of damages and interest for any alleged delays in performance. The same concept appears in La.Civ.Code art. 1989, which provides that, “damages for delay in the performance of an obligation are owed from the time the obligor is put in default.”
Nancy Scott Degan & Kent Andrew Lambert, A Practical Guide to Commercial
Damages in Louisiana, 44 Loy. L. Rev. 257, 260 (1998). The drafters of
Louisiana’s Mineral Code incorporated the concept of putting the obligor in default
by making written notice of failure to pay a prerequisite to receiving damages in
La.R.S. 31:212.21, which states:
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.
We find the requirement of written notice instructive in interpreting the award of
interest on damages under La.R.S. 31:212.23(C), which states that the court may
award “legal interest on [damages] from the date due. . . .”
11 In accordance with the principles of law cited above, we find that the “date
due” for damages for delayed performance is the date of written demand. In
making this decision, we recognize that “[p]rejudgment interest, even when
available, is likewise unlikely to fully compensate the aggrieved litigant for
deprivation of capital or resources over the tenure of protracted commercial
litigation.” Nancy Scott Degan & Kent Andrew Lambert, A Practical Guide to
Commercial Damages in Louisiana, 44 Loy. L. Rev. 257, 260 (1998).
Given the above, we find that the assignment raised by Cimarex is without
merit. Further, while we did find that the interest on the statutory damages could
have potentially begun to accrue from the date of written demand rather than the
date of judicial demand, Orange River did not appeal this issue. Therefore, as this
court can only adjudicate issues before it, we merely uphold the trial court’s award
of interest as accruing on the awarded statutory damages from the date of judicial
demand.
ASSIGNMENT OF ERROR #5:
Finally, Cimarex asks this court to dismiss the trial court’s award of
damages to the Miocene Group, due to Miocene’s failure to give written notice of
failure to pay royalties before making judicial demand. This court takes notice of
the fact that all members of the Miocene Group, save Essex Royalty Joint Venture,
II (hereinafter “Essex”), have settled out of court.
La.R.S. 31:212.21 clearly requires a royalty owner other than the mineral
lessor to “give his obligor written notice of such failure [to pay royalties] as a
prerequisite to a judicial demand for damages.” We find that Essex did give proper
notice to its obligor, as required by the Mineral Code in La.R.S. 31:212.21, when
Essex’s attorney, John Grant, emailed Cimarex on July 23, 2004, urging them to
12 forego the filing of a concursus and “instead distribute the royalty to the rightful
owners.”6 We find such notice sufficient to meet the requirements of the Mineral
Code. The trial court’s award of damages to Essex is hereby affirmed.
ANCILLARY ISSUE #1:
Two defendants in reconvention, Zeneco, Inc. (hereinafter “Zeneco”) and
Palace Exploration Company (hereinafter “Palace”), assert that they should not be
included in the trial court’s judgment, since there was no “independent
negligence” on their part and, furthermore, there is no privity of contract between
them and Orange River. We disagree, finding that non-lessor mineral royalty
owners have a cause of action against lessees and sublessees for non-payment of
royalties7.
The Mineral Code clearly contemplates a situation in which someone, other
than the lessor, might seek payment of royalties from a lessee. La.R.S. 31:212.218.
Though Palace and Zeneco are sublessees and not lessees, the Mineral Code has
also resolved privity of contract issues concerning sublessees. In the past,
Louisiana jurisprudence held that there was no privity of contract between
sublessees or assignees and the original lessor. See Berman v. Brown, 224 La. 619,
70 So.2d 433 (La.1953); Broussard v. Hassie Hunt Trust, 231 La. 474, 91 So.2d
6 In CLK Co., L.L.C. v. CXY Energy, Inc., 07-834 (La.App. 3 Cir. 12/19/07), 972 So.2d 1280, this court found that letters requesting acknowledgment of assignment of royalty interest, but not demanding payment of royalties were insufficient and did not meet the statutory requirement of notice in La. R.S. 31:212.21. Appellees in that case were not entitled to recover double damages under Louisiana’s Mineral Code. 7 Other cases have already recognized that non-lessor mineral royalty holders may have a cause of action against lessees for non-payment or improper payment of royalties, following the assignment by lessor of mineral royalty interests to others. Hanks v. Wilson, 93-554 (La.App. 1 Cir. 3/11/94), 633 So.2d 1345. 8 Louisiana Revised Statutes 31:212.21 - 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.
13 762 (La.1956). However, “[w]ith the adoption of the Mineral Code in 1975, a
prime lessor is now allowed to demand performance of the sublessee directly.”
Angela Jeanne Crowder, Take-or-Pay Payments and Settlements - Does the
Landowner Share?, 49 La. L. Rev. 921, 926 (1989). Louisiana Revised Statutes
31:128 states:
To the extent of the interest acquired, an assignee or sublessee acquires the rights and powers of the lessee and becomes responsible directly to the original lessor for performance of the lessee’s obligations.
Palace and Zeneco are sublessees of Cimarex because Cimarex retained
some interest in the lease contract. Palace took only a twenty-five (25%) percent
interest in the lease, and Zeneco took a one point two five (1.25%) percent
interest.9 “Under the sublease, the sublessee expressly contracts to assume certain
obligations under the lease, including the payment of royalties . . ..Therefore, the
lessor has a right of action against [the sublessee] directly if royalties are not paid
when due.” Angela Jeanne Crowder, Take-or-Pay Payments and Settlements -
Does the Landowner Share?, 49 La. L. Rev. 921, 926 (1989). In this case, the
lessor does not own the mineral rights, as contemplated by the statute above.10
However, just as the sublessee would, to the extent of interest acquired, be
responsible to the lessor, he is likewise responsible to assignees of the lessor’s
mineral royalty interests. The mineral royalty owner is simply a subsequent
obligee or “creditor” of the sublessee. Palace and Zeneco were put on notice by the
9 “The cases are clear that where the lessee retains some interest in the lease, the contract is one of sublease.” Brown v. Mayfield, 488 So.2d 322, 324 (La.App. 3 Cir. 1986). 10 “Under the Mineral Code, as well as under the Civil Code, ‘mineral rights’ form a component part of the ownership of land, that is, the right to search for and reduce minerals to possession belongs to the owner of the ground. . .The mineral rights, however, are separable components of the ownership of land: the owner of the ground may segregate the mineral rights from the ownership of land and either retain them himself or convey them to another person.” A.N. Yiannopoulos, Personal Servitudes § 63 (4th ed. 2008).
14 public records, in which Orange River’s mineral royalty interest was duly filed for
record, that Orange River was the rightful owner of the mineral royalties at issue.
In addition, the Louisiana Code of Civil Procedure provides that a mineral
royalty owner may pursue action in his own right. Louisiana Code of Civil
Procedure Article 3664 states that “[t]he owner of a mineral right may assert,
protect, and defend his right in the same manner as the ownership or possession of
other immovable property, and without the concurrence, joinder, or consent of the
owner of the land or mineral rights.” Therefore, even without being party to the
lease giving rise to mineral royalty payments, mineral royalty owners may protect
their rights.
ANCILLARY ISSUE #2:
Zeneco argues that the trial court erred in calculating the extent of Zeneco’s
interest in Cimarex’s mineral lease as five (5%) percent. Zeneco points out that it
only has a five (5%) percent interest in Palace’s twenty-five (25%) percent interest
in Cimarex’s mineral lease. Thus, Zeneco should only be held responsible for
1.25% of the judgment. We agree, finding that this assertion has merits based on
the facts in the record. We hereby amend the judgment of the trial court
accordingly.
ORANGE RIVER APPEAL:
Orange River, in its reply brief, appeals the trial court’s denial of
consequential damages for Orange River’s inability to sell its royalty interests
during the concursus proceedings brought by Cimarex. We find no merit in this
appeal.
“When a judgment is silent as to part of the relief requested, the judgment is
deemed to have denied that relief.” Duhon v. Lafayette Consol. Govt., 05-657, p.
15 11 (La.App. 3 Cir. 12/30/05), 918 So.2d 1114, 1120, citing Guaranty Bank and
Trust Co. of Alexandria, LA v. Carter, 394 So.2d 701 (La.App. 3 Cir.), writ
denied, 399 So.2d 599 (La.1981). Whether to award consequential damages for
loss of profits due to missed sales is reviewed by the manifestly erroneous
standard of review. Evangeline Farmers Cooperative v. Fontenot, 565 So.2d 1040
(La.App. 3 Cir. 1990).
In the case before us, the trial court awarded Orange River considerable
statutory damages. Thus, it follows that should the trial court have felt it necessary
to award consequential damages to Orange River, it would have awarded those
damages. Given the discretion given to the finder of fact in awarding damages
and, further, the amount of damages already awarded by the trial court to Orange
River in the form statutory damages that are double the damages due. We find no
error in the trial court’s decision to deny Orange River the consequential damages
it claims to have lost due to missed sales of royalty interests. Therefore, we affirm
the trial court’s judgment in this regard.
CONCLUSION:
We amend the trial court’s judgment with respect to Zeneco’s percent
interest in the Cimarex mineral lease and affirm in all other respects. Costs of this
appeal are to be paid by Appellants.