Sterling Timber Associates, LLC v. Union Gas Operating Co.

• Court: Louisiana Court of Appeal
• Decided: November 2, 2016
• Docket: CA-0016-0433
• Status: Unknown

Opinion

STATE OF LOUISIANA COURT OF APPEAL, THIRD CIRCUIT

16-433

STERLING TIMBER ASSOCIATES, L.L.C.

VERSUS

UNION GAS OPERATING COMPANY, ET AL.

**********

APPEAL FROM THE THIRTY-THIRD JUDICIAL DISTRICT COURT PARISH OF ALLEN, NO. C-2013-431 HONORABLE JOEL G. DAVIS, DISTRICT JUDGE

JOHN D. SAUNDERS JUDGE

Court composed of Sylvia R. Cooks, John D. Saunders, and Shannon J. Gremillion, Judges.

AFFIRMED.

Michael W. Mengis Joshua C. Thomas Baker & Hostetler, LLP 811 Main Street, Suite 1100 Houston, TX 77002 (713) 646-1330 COUNSEL FOR DEFENDANT/APPELLEE: Union Gas Operating Comapny Michael B. Holmes Hebert, Holmes & Bertrand P. O. Drawer 790 Kinder, LA 70648-0790 (337) 738-2568 COUNSEL FOR DEFENDANTS/APPELLEES: O'Neal Stuart Investments, LLC Barbara L. O'Neal

Al J. Robert, Jr. Law Office of Al J. Robert, Jr., L.L.C. 757 St. Charles Avenue, Suite 301 New Orleans, LA 70130 (504) 309-4852 COUNSEL FOR PLAINTIFF/APPELLANT: Sterling Timber Associates, L.L.C.

Michael J. Williamson Plauche, Smith & Nieset P. O. Drawer 1705 Lake Charles, LA 70602 (337) 436-0522 COUNSEL FOR DEFENDANTS/APPELLEES: Jeffrey H. Darbonne

David Jefferson Dye David Jefferson Dye, L.L.C. 1204 Napoleon Avenue New Orleans, LA 70115 (504) 891-4306 COUNSEL FOR PLAINTIFF/APPELLANT: Sterling Timber Associates, L.L.C.

Michael S. Heier Assistant Attorney General P. O. Box 94005 Baton Rouge, LA 70804-9005 (225) 326-6085 COUNSEL FOR OTHER APPELLEE: State of Louisiana SAUNDERS, Judge.

This is a mineral rights case stemming from whether La. R.S. 31:76 or La.

R.S. 31:77 should apply in determining ownership rights to minerals when

property is sold while it is subject to a mineral servitude in favor of a third party.

Here, the seller of the property reserved mineral rights it did not own at the time of

the sale in the sale document. Further, the buyer of the property executed a

mineral deed in favor of the seller, even though the buyer of the property also

currently had no rights to the minerals due to the mineral servitude.

The trial court found that La. R.S. 31:76 applied based on the controlling

case of Rodgers v. CNG Producing Co., 528 So.2d 786 (La.App. 3 Cir.), writ

denied, 532 So.2d 180(La.1988). As such, the trial court granted summary

judgments against the seller because it had no ownership interest in the relevant

minerals. The seller appeals. We affirm.

FACTS AND PROCEDURAL HISTORY:

This action relates primarily to two parcels of property located in Allen

Parish. In August 1995, the property was subjected to a ten-year mineral servitude.

On October 8, 2004, Sterling Timber Associates (“Sterling”) sold the two parcels

of property as part of a sale of more than 14,000 acres located in Allen, Beauregard,

Calcasieu, and Jefferson Davis Parishes to O’Neal Stuart Investment, L. L. C. and

Barbara L. O’Neal (collectively “OSI”). When the sale transpired, the property

was subject to a mineral servitude. Despite this fact, in the sale agreement,

Sterling retained all mineral rights to the property. On that same date, OSI

executed a mineral deed in favor of Sterling on the 14,000 plus acres.

In August 2010, OSI entered into mineral leases with Orbit Energy Partners

for the two parcels. Orbit Energy Partners subsequently assigned the leases to Union Gas Operating Company (“Union Gas”), which successfully drilled and

began production on the two parcels.

Sterling served notice and demand upon Union Gas for its alleged

entitlement to the minerals being extracted from the two parcels. Union Gas

denied Sterling’s demand.

Sterling filed a petition for declaratory judgment and supplemental relief

against Union Gas and OSI in an attempt to enforce its alleged mineral rights to the

two parcels. After the parties answered, OSI filed a reconventional demand

against Sterling seeking to rescind the October 8, 2004 mineral deed and seeking

damages for alleged bad faith. Sterling answered OSI’s reconventional demand.

Thereafter, Union Gas and OSI filed motions for summary judgment. Next,

Sterling opposed the motions for summary judgment and filed for, and was granted,

leave to file an amended petition.

The trial court granted Union Gas and OSI’s motion for summary judgment,

but limited those judgments to issues raised by Sterling’s original petition because

the original motions for summary judgment did not address all the causes of action

asserted in Sterling’s amended petition. Union Gas and OSI then filed

supplemental motions for summary judgment that addressed the causes of action

asserted in Sterling’s amended petition. The trial court granted those supplemental

motions. Sterling appeals the granting of Union Gas and OSI’s motions for

summary judgment, raising the seven assignments of error that follow:

ASSIGNMENTS OF ERROR:

1. The district court erred in finding that Union Gas and OSI met the burden for summary judgment and by disregarding genuinely disputed issues of material fact.

2 2. The district court erred by not finding that Union Gas was bound by the documents filed in the Public Record.

3. The district court erred in its findings that the parties did not have an enforceable contract pursuant to La. R.S. 31:3.

4. The district court erred by not considering whether OSI and Union Gas acquiesced to the provisions in the October 8, 2004 Act of Sale and Mineral Deed in favor of Sterling also dated October 8, 2004.

5. The district court erred in finding that Rodgers v. CNG Producing Co. is applicable to the facts of this matter.

6. The district court erred in its failure to apply the after-acquired title doctrine from La. R.S. 31:77 to the facts of this matter.

7. The district court erred in its finding that statutory damages, interest, and attorney fees are not available to Sterling pursuant to [La.] R.S. 30:10(A)(2)(b)(ii)(ff) and La. R.S. 31:212.23.

ASSIGNMENT OF ERROR NUMBER FIVE:

Sterling contends, in its fifth assignment of error, that the trial court erred in

finding Rodgers v. CNG Producing Co. is applicable to the facts of this matter.

We address this assignment of error before any other because it decides an issue in

this appeal that potentially renders the remaining assignments of error without

merit, i.e., whether Sterling had any ownership interest in the minerals of the

relevant property.

Standard of Review

On July 9, 2015, Union Gas and OSI filed motions for summary judgment.

Prior to the trial court hearing these motions, on September 4, 2015, Sterling

amended its petition. On October 19, 2015, Union Gas and OSI filed a

supplemental motion for summary judgment to address any new claims brought by

Sterling in its amended petition. The trial court granted Union Gas and OSI’s

initial motions for summary judgment on November 16, 2015. At the first hearing,

3 the trial court stated that any new claims asserted in Sterling’s amended petition

remained pending. After a hearing on February 23, 2016, the trial court reaffirmed

its order granting Union Gas and OSI’s motion for summary judgment. This

resulted in dismissal of all claims Sterling had against Union Gas and some, but

not all, of its claims against OSI.

“Appellate courts review summary judgments de novo under the same criteria that govern the district court’s consideration of whether summary judgment is appropriate.” Elliott v. Continental Cas. Co., 06-1505, p. 10 (La. 2/22/07), 949 So.2d 1247, 1253 (quoting Reynolds v. Select Props., Ltd., 93-1480 (La. 4/11/94), 634 So.2d 1180, 1183). A summary judgment shall be granted “if the pleadings, depositions, answers to interrogatories, and admissions, together with the affidavits, if any, admitted for purposes of the motion for summary judgment, show that there is no genuine issue as to material fact, and that mover is entitled to judgment as a matter of law.” La.Code Civ.P. art.966(B)(2).5 5 We note that La.Code Civ.P. art. 966 was amended by 2015 La. Acts No. 422, § 1, and its provisions became effective on January 1, 2016. This matter is considered applying the provisions of the Louisiana Code of Civil Procedure as they existed at the time of the trial court’s consideration. See 2015 La. Acts. No. 422, § 2 which states:“The provisions of this Act shall not apply to any motion for summary judgment pending adjudication or appeal on the effective date of this Act.”

Savoie v. Calcasieu Parish Ward Four Fire District No. 2, p. 5 (La.App. 3 Cir.

9/28/16), __ So.3d__, __ (footnote in original).

On the Merits

Union Gas and OSI asserted in the hearings on the motions that Rodgers,

528 So.2d 786 was controlling. Much like this assignment of error, in Rodgers,

this court adjudicated whether the facts before it warranted the application of La.

R.S. 31:76 or La. R.S. 31:77 of our mineral code.

Louisiana Revised Statutes 31:76 succinctly states, “[t]he expectancy of a

landowner in the extinction of an outstanding mineral servitude cannot be

4 conveyed or reserved directly or indirectly.” An exception to this rule is found in

the codification of the after-acquired title doctrine found in La. R.S. 31:77, which

states:

If a party purports to acquire a mineral servitude from a landowner when the right purportedly acquired is outstanding in another and the landowner either subsequently acquires the outstanding right or is the owner of the land at the time it is extinguished, the after-acquired title doctrine operates to vest the right in the party who purported to acquire it to the full extent of his title.

In Rodgers, the property was sold in 1975, but was subject to a ten-year

mineral servitude originating in 1968. The same day as the purchase, the buyer of

the property conveyed all the mineral rights back to the seller. The Rodgers court

nullified the second transaction as a disguised reservation of reversionary mineral

rights, a violation of public policy and directly forbidden by La. R.S. 31:76.

The Rodgers court also found that La. R.S. 31:77 did not apply because the

purpose of that statute was “protecting an innocent purchaser from an oversale of

mineral rights by a land owner.” Rodgers, 528 So.2d at 789. An “oversale” is

when a tract might be subject to grants or reservations in excess of the grantor’s

ownership interest, i.e., the putative burden in excess of the owned mineral rights.

Patrick H. Martin, LOUISIANA MINERAL LAW TREATISE 141 (Patrick H. Martin ed.,

Claitor’s Publishing Division) 2012.

Here, like in Rodgers, Sterling, the seller, sold property that was burdened

by a mineral servitude. Also like in Rodgers, the sale instrument included

indication that the seller’s reservation of the mineral rights was a consideration of

the sale. In Rodgers, the sale instrument included a provision stating that the seller

retaining the mineral rights was “an integral part of this sale.” Here, the sale

instrument specifically excluded the mineral rights. Moreover, as was the case in

5 Rodgers, OSI, the buyer of the property, conveyed the mineral rights to Sterling,

the seller of the property, in an instrument executed on the same day as the sale of

the land. Finally, in Rodgers and in this case, the purchaser of the property knew

that the seller presently owned no mineral interest in the land. Only a future right

to receive the mineral rights through nonuse was potentially present. As such, like

in Rodgers, there was not an “oversale” here where an innocent party needed

protection from a seller’s attempt to sell something that the seller did not presently

own.

Given all the factual similarities, we agree with the trial court and find that

Rodgers is directly on point and applicable to the case before us. Sterling’s claim

to ownership in the minerals is based on disguised reservations of reversionary

mineral rights. This is a violation of public policy and is directly forbidden by La.

R.S. 31:76. Sterling raised no argument that was not considered previously by this

court in Rodgers. Further, Sterling presented no argument that was not placed

before our supreme court when writs were denied in the Rodgers case. As such,

we find no merit in Sterling’s fifth assignment of error.

REMAINING ASSIGNMENTS OF ERROR:

We found above that the Rodgers case is applicable and dispositive of

whether Sterling had any ownership interest in the minerals of the relevant

property. It is Sterling’s burden to prove at trial that it has an ownership interest in

the minerals. Union Gas and OSI, in their motions for summary judgment,

rightfully assert that an essential element for any of the claims Sterling has brought

is that Sterling has an ownership interest in the relevant minerals. Further, Union

Gas and OSI pointed out an absence of any evidence that Sterling had such an

6 ownership interest. The burden then shifts to Sterling to present evidence that it

can carry its burden to prove its ownership interest in the relevant minerals.

After reviewing the record, we find Sterling has presented no evidence

which indicates it can carry this burden of proof at trial. Accordingly, we find that

Union Gas and OSI are entitled to summary judgment and Sterling’s remaining

assignments of error are without merit.

DISPOSITION:

Sterling Timber Associates, L.L.C. raise seven assignments of error. We

find no merit to any of these assignments. As such, we affirm the trial court’s

findings and judgment and assess all costs of these proceedings to Sterling Timber

Associates, L. L. C.