Gloria's Ranch, L.L.C. v. Tauren Exploration, Inc., Cubic Energy, Inc., Wells Fargo Energy Capital, Inc., and Exco USA Asset, Inc.

Supreme Court of Louisiana
FOR IMMEDIATE NEWS RELEASE NEWS RELEASE #030

FROM: CLERK OF SUPREME COURT OF LOUISIANA

The Opinions handed down on the 27th day of June, 2018, are as follows:

BY CLARK, J.:

2017-C-1518 GLORIA'S RANCH, L.L.C. v. TAUREN EXPLORATION, INC., CUBIC ENERGY,
C/W INC., WELLS FARGO ENERGY CAPITAL, INC., AND EXCO USA ASSET, INC.
2017-C-1519 (Parish of Caddo)
2017-C-1522

A landowner brought suit against several mineral lessees for
breach of the obligations of its mineral lease. The mortgagee of
one of the lessees was also named as a defendant. The lower
courts held all lessees and the mortgagee solidarily liable for
damages resulting from the failure to furnish a recordable act
evidencing the expiration of the lease, i.e., failure to release
the lease. We granted these consolidated writ applications to
determine (1) whether the mortgagee was properly held solidarily
liable as an “owner” of the lease under La. Mineral Code art. 207
and a “lessee” under La. Mineral Code art. 140; (2) whether the
imposition of solidary liability was correct with regard to the
owner of the shallow rights; (3) whether La. Mineral Code art.
140’s calculation of damages contemplates the inclusion of unpaid
royalties (the amount due) in addition to double the amount of
unpaid royalties (as a penalty) or whether the maximum damage
award allowed is twice the amount of unpaid royalties; and (4)
whether $125,000 in attorney fees for work done on appeal is
excessive.For the reasons that follow, we find (1) the mortgagee
was not an “owner” for purposes of La. Mineral Code art. 207 and
is, therefore, not liable for failure to release the lease. For
the same reasons, we find the mortgagee was not a “lessee” for
purposes of La. Mineral Code art. 140 and, is, therefore, not
liable for failure to pay royalties that were due. (2) We find
Tauren is solidarily liable for the damages because the failure
to release the lease is an indivisible obligation. (3) We hold
La. Mineral Code art. 140 authorizes as damages a maximum of
double the amount of unpaid royalties. (4) Last, we amend the
award of attorney fees to reflect our holdings herein.

REVERSED IN PART; AMENDED IN PART; AND AFFIRMED AS AMENDED.

Retired Judge Hillary Crain assigned as Justice ad hoc, sitting
for Cricthon, J., recused.

CRICHTON, J., recused.
WEIMER, J., concurs in part and dissents in part and assigns
reasons.
GENOVESE, J., dissents in part and assigns reasons.

06/27/18

SUPREME COURT OF LOUISIANA
No. 2017-C-1518
CONSOLIDATED WITH
No. 2017-C-1519
CONSOLIDATED WITH
No. 2017-C-1522
GLORIA'S RANCH, L.L.C.
VERSUS
TAUREN EXPLORATION, INC., CUBIC ENERGY, INC., WELLS FARGO
ENERGY CAPITAL, INC., AND EXCO USA ASSET, INC.

ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
SECOND CIRCUIT, PARISH OF CADDO

Clark, Justice∗

A landowner brought suit against several mineral lessees for breach of the

obligations of the mineral lease. The mortgagee of one of the lessees was also named

as a defendant. The lower courts held all lessees and the mortgagee solidarily liable

for damages resulting from the failure to furnish a recordable act evidencing the

expiration of the lease, i.e., failure to release the lease. We granted these

consolidated writ applications to determine (1) whether the mortgagee was properly

held solidarily liable as an “owner” of the lease under La. Mineral Code art. 207 and

a “lessee” under La. Mineral Code art. 140; (2) whether the imposition of solidary

liability was correct with regard to the owner of a portion of the shallow rights; (3)

whether La. Mineral Code art. 140’s calculation of damages contemplates the

inclusion of unpaid royalties (the amount due) in addition to double the amount of

unpaid royalties (as a penalty) or whether the maximum damage award allowed is

twice the amount of unpaid royalties; and (4) whether $125,000 in attorney fees for

work done on appeal is excessive.

∗Judge Hillary Crain is assigned as Justice ad hoc, sitting for Crichton, J., recused.

For the reasons that follow, we find (1) the mortgagee was not an “owner” for

purposes of La. Mineral Code art. 207 and is, therefore, not liable for failure to

release the lease. For the same reasons, we find the mortgagee was not a “lessee”

for purposes of La. Mineral Code art. 140 and, is, therefore, not liable for failure to

pay royalties that were due. (2) We find Tauren is solidarily liable for the damages

because the failure to release the lease is an indivisible obligation under the particular

facts of this case. (3) We hold La. Mineral Code art. 140 authorizes as damages a

maximum of double the amount of unpaid royalties. (4) Last, we amend the award

of attorney fees to reflect our holdings herein.

FACTS AND PROCEDURAL HISTORY

Gloria’s Ranch, L.L.C. (“Gloria’s Ranch”) granted a mineral lease to Tauren

Exploration, Inc. (“Tauren”) on September 17, 2004. The lease covered 1,390.25

acres in Sections 9, 10, 15, 16, and 21, Township 15 North, Range 15 West, Caddo

Parish, Louisiana (“the property”). Tauren was granted “the exclusive right to enter

upon and use the land . . . for the exploration for and production of oil [and] gas . . .

together with the use of the surface of the land for all purposes incident to

[exploration and production] with the right of ingress and egress to and from said

lands at all times for such purposes.” The lease was granted for a primary term of

three (3) years “and as long thereafter as oil, gas, sulphur, or other minerals is

produced from [the property] or from land pooled therewith.”

In February 2006, Tauren transferred an undivided 49% interest in the lease

to Cubic Energy, Inc. (“Cubic”). On March 5, 2007, Tauren and Cubic executed

separate credit agreements with Wells Fargo Energy Capital, Inc. (“Wells Fargo”).1

Wells Fargo provided Cubic with a revolving credit facility not to exceed

1
The credit agreement between Wells Fargo and Tauren is not in the record. The instant opinion,
however, concerns only the mortgage and credit agreement between Wells Fargo and Cubic.
2

$20,000,000 outstanding at any time and a $5,000,000 convertible term loan. As

security, Cubic mortgaged its interest in approximately 750 mineral leases, including

the instant lease with Gloria’s Ranch, and assigned as collateral the profits earned

therefrom.

In 2007, Tauren contracted with Fossil Operating Inc. (“Fossil”) to commence

oil and gas operations on the property. In early 2008, Fossil drilled and completed

wells on Sections 9, 10, and 16 in an area known as the Cotton Valley geologic

formation. 2 Fossil vertically drilled Section 16 to the Haynesville Shale formation,

but completed the well only to the shallower depths of the Cotton Valley formation.

Additionally, in 2008, another company, Chesapeake Operating, Inc.

(“Chesapeake”) 3 drilled a well, (the “Soaring Ridge 15-1 well”) on a neighboring

tract in the deeper Haynesville Shale formation. Chesapeake unitized the Gloria’s

Ranch property located in Section 15 with the Soaring Ridge 15-1 well. The unit,

known as the “Soaring Ridge 15H,” was horizontally drilled by Chesapeake into the

Haynesville Shale formation. Chesapeake also drilled Section 21 (“Feist-21-1”). On

September 1, 2009, Gloria’s Ranch executed a top lease in favor of Chesapeake for

the right to conduct operations on its property in Section 21. By definition and by

the contract’s terms, Chesapeake’s lease only became effective if and when the

existing 2004 lease to Tauren expired or was terminated.

Effective October 30, 2009, Tauren and EXCO USA Asset, Inc. (“EXCO”)

entered into a purchase and sale agreement. Pursuant to the agreement, Tauren

conveyed its 51% interest in the Deep Rights to EXCO. Cubic conveyed to Tauren

2
For purposes of this litigation, the geological strata between the surface and the base of the Cotton
Valley Sands represent the “Shallow Rights.” The geological strata below the base of the Cotton
Valley Sands, including but not limited to the Haynesville Shale formation, represent the “Deep
Rights.”
3
Chesapeake is not a party to the instant litigation.
3

an overriding royalty interest in Cubic’s 49% interest in the Deep Rights.

Simultaneously, Tauren made a cash payment to Wells Fargo and assigned to it a

10% net profits interest in the Shallow Rights and the overriding royalty interest in

the Deep Rights received from Cubic. In exchange, Wells Fargo cancelled the

Tauren mortgage.

On December 3, 2009, Gloria’s Ranch sent a letter to Tauren, Cubic, EXCO

and Wells Fargo (“the defendants”), seeking to establish whether the lease was still

producing in paying quantities. It was the belief of Gloria’s Ranch that the lease had

expired for lack of production in paying quantities. Thus, it wanted confirmation

via monthly revenue and expense reports that the wells were still profitable.

Tauren responded that it had miscalculated some of its expenses but assured

Gloria’s Ranch that the wells were still producing in paying quantities. Ultimately,

on January 28, 2010, Gloria’s Ranch sent written demand to the defendants,

requesting a recordable act evidencing the expiration of the lease. No response was

forthcoming by any of the defendants. Accordingly, Gloria’s Ranch filed suit,

alleging the defendants failed to furnish a recordable act evidencing the expiration

of the lease as required by La. Mineral Code arts. 206 and 207. Gloria’s Ranch

claimed in its petition that the lease expired for not producing in paying quantities

and that the defendants’ failure to release the lease caused it damages in the amount

of lost bonus payments, lost rentals, and lost royalties. Additionally, it sought unpaid

royalties for Section 15, which was still maintained by production from the Soaring

Ridge 15H.

Gloria’s Ranch reached a settlement with EXCO on August 13, 2014, thereby

releasing EXCO as a defendant in this matter.

A bench trial was held, and the trial court rendered judgment in favor of

Gloria’s Ranch and against Tauren, Cubic, and Wells Fargo in solido. It found the

4

lease had expired as to Sections 9, 10, 16, and 21 due to lack of production in paying

quantities for at least the twelve months preceding the January 28, 2010 demand and

that the defendants failed to furnish a recordable act evidencing same, as required

by the law. 4 The court also found that the 16-1 well was not drilled in good faith.

Rather, it was drilled solely to maintain the Deep Rights for purposes of speculation.

The trial court awarded damages for lost-leasing opportunities at $18,000 per acre

($22,806,000). 5 It further awarded $726,087.78 for unpaid royalties for Section 15

pursuant to La. Mineral Code art. 140 ($242,029.26 in royalties due plus

$484,058.52 in double royalties as a penalty). Attorney fees in the amount of

$936,803 were also awarded.

With regard to Wells Fargo’s solidary liability, the trial court found that Wells

Fargo breached its duty to Gloria’s Ranch either to release its mortgage on the lease

or to authorize Cubic to release the lease. The trial court reasoned that (1) Wells

Fargo’s mortgage included an assignment of the lease; (2) Wells Fargo controlled

Cubic’s right to release and never authorized a release; (3) Wells Fargo controlled

the revenue from the lease by virtue of an assignment of revenues, a net profits

interest, and a overriding royalty interest; and (4) Wells Fargo knew the lease had

expired because it regularly audited Tauren and Cubic’s well cost and revenue

information.

Tauren, Cubic, and Wells Fargo filed motions for new trial. On November

23, 2015, the trial court granted the motions, in part, reducing the damage awards by

EXCO’s virile portion (25%) to reflect EXCO’s settlement. See La. C.C. art. 1804.

4
The court of appeal found the lease did not produce in paying quantities for the 18-month period
prior to demand by Gloria’s Ranch in January of 2010.
5
Sections 15 and 21 were excluded from this award. The trial court did not award any damages
for lost-leasing opportunities for Section 15 since it was still producing or for Section 21 since
Gloria’s Ranch was able to lease it.
5

The defendants appealed. The court of appeal affirmed the judgment and awarded

$125,000 in attorney fees for work done on appeal. Gloria’s Ranch, L.L.C. v. Tauren

Exploration, Inc., 51,077 (La. App. 2 Cir. 6/2/17), 223 So.3d 1202. Tauren, Cubic,

and Wells Fargo filed writ applications. We consolidated and granted their writs to

determine the correctness of the lower courts’ judgments. Gloria’s Ranch, L.L.C. v.

Tauren Exploration, Inc., 17-1518, 17-1519, 17-1522 (La. 12/15/17), 231 So.3d 639;

231 So.3d 640; 231 So.3d 642. We will address each writ application separately.

DISCUSSION

Wells Fargo

Wells Fargo challenges the lower courts’ finding that it was solidarily liable

with the remaining defendants for Gloria’s Ranch’s damages. Wells Fargo argued

that it is not responsible for the obligations sued upon, as they are obligations of the

mineral lessees, not of the mortgagee of a mineral lessee. Louisiana Mineral Code

art. 206(A) (La. R.S. 31:206) provides:

Except as provided in Paragraph B of this Article [not applicable
herein], when a mineral right is extinguished by the accrual of liberative
prescription, expiration of its term, or otherwise, the former owner
shall, within thirty days after written demand by the person in whose
favor the right has been extinguished or terminated, furnish him with a
recordable act evidencing the extinction or expiration of the right.
Louisiana Mineral Code art. 207 (La. R.S. 31:207) provides:

If the former owner of the extinguished or expired mineral right fails to
furnish the required act within thirty days of receipt of the demand or if
the former lessee of a mineral lease fails to record the required act
within ninety days of its extinguishment prior to the expiration of its
primary term, he is liable to the person in whose favor the right or the
lease has been extinguished or expired for all damages resulting
therefrom and for a reasonable attorney’s fee incurred in bringing suit.

6

Wells Fargo contends it is not an owner of the lease; it is merely a creditor

with a security interest in the lease.6 As such, Wells Fargo asserts it was improperly

held responsible for any breach of the lease obligations. Gloria’s Ranch, however,

argues Wells Fargo is an assignee of the lease, an overriding royalty owner, and a

net profits owner. It also argues that the “bundle of rights” assumed by Wells Fargo

amounted to ownership under civilian law, and, accordingly, Wells Fargo is liable

with the other defendants under a “control theory.” Furthermore, Gloria’s Ranch

avers that Wells Fargo’s mortgage created a cloud on its title, and Wells Fargo was

properly held liable for its failure to release its mortgage. Last, Gloria’s Ranch

argues Wells Fargo judicially admitted to having an interest in the lease. Because

Gloria’s Ranch relied on this statement to its detriment, it contends Wells Fargo

should be bound by its admission with no further proof of ownership required.

The relevant clauses in the mortgage agreement between Cubic and Wells

Fargo provide:

2.01 Hypothecation. (a) In order to secure the full and punctual
payment and performance of all present future Indebtedness, the
Mortgagor does by these presents specially mortgage, affect,
hypothecate, pledge, and assign unto and in favor of Mortgagee, to
inure to the use and benefit of Mortgagee, the following described
property, to-wit:

(1) The Mineral Properties, together with all rents, profits,
products and proceeds, whether now or hereafter existing or
arising, from the Mineral Properties[.][ 7]

2.02 The Security Interests. In order to secure the full and punctual
payment and performance of all present and future Indebtedness,
Mortgagor hereby grants to Mortgagee a continuing security interest in
and to all right, title and interest of Mortgagor in, to and under the

6
Wells Fargo points to the express provisions in the mortgage and credit agreements that state
there is no intent on the part of Wells Fargo to assume the obligations of the mineral lease, to
assume any obligation of Cubic, or to provide any benefit to a third party.
7
“Mineral Properties” is defined in the mortgage as “all of Mortgagor’s right, title and interests
in the oil, gas, and mineral leases, mineral servitudes, subleases, farmouts, royalties, overriding
royalties, net profits interests, production payments, operating rights and similar mineral interests
and subleases and assignments of such mineral interest[s].”
7

following property, whether now owned or existing or hereafter
acquired or arising and regardless of where located:

(1) The Mineral Properties

2.03 Assignment. To further secure the full and punctual payment and
performance of all present and future Indebtedness, up to the maximum
amount outstanding at any time...Mortgagor does hereby absolutely,
irrevocably and unconditionally pledge, pawn, assign, transfer and
assign to Mortgagee all monies which accrue after 7:00 a.m. Central
Time...to Mortgagor’s interest in the Mineral Properties and all present
and future rents therefrom...and all proceeds of the Hydrocarbons...and
of the products obtained, produced or processed from or attributable to
the Mineral Properties now or hereafter (which monies, rents and
proceeds are referred herein as the “Proceeds of Runs”). Mortgagor
hereby authorizes and directs all obligors of any Proceeds of Runs to
pay and deliver to Mortgagee, upon request therefor by Mortgagee, all
of the Proceeds of Runs...accruing to Mortgagor’s interest[.] (Emphasis
in original).

***

5.02 Remedies.
***

(b) Upon the occurrence of any Event of Default, Mortgagee may take
such action, without notice or demand, as it deems advisable to protect
and enforce its rights against Mortgagor and in and to the Collateral...

***
5.05 Sale. Upon the occurrence of an Event of Default, Mortgagee may
exercise all rights of a secured party under the UCC and other
applicable law...and, in addition, Mortgagee may, without being
required to give any notice, except as herein provided or as may be
required by mandatory provisions of law, sell the Collateral or any part
thereof at public or private sale, for cash, upon credit or future delivery,
and at such price or prices as Mortgagee may deem satisfactory.
Mortgagee may be the purchaser of any or all of the Collateral so sold
at any public sale...Upon any such sale, Mortgagee shall have the right
to deliver, assign and transfer to the purchaser thereof the Collateral so
sold[.]

The court of appeal rejected the argument that the lease was transferred to

Wells Fargo by assignment. Because the mortgage did not transfer Cubic’s working

interest in the land, the court of appeal found an assignment did not occur. It held:

The language of the mortgage shows the purpose of the instrument was
for Cubic to secure its loans with Wells Fargo by granting Wells Fargo
a continuing security interest in multiple mineral leases, which included

8

Gloria’s Ranch’s lease. In the event Cubic defaulted on its loans, the
mortgage gave Wells Fargo the right to seize and sell the lease to satisfy
the debt. As such, we find the use of the word “assign” in the
Hypothecation clause does not deprive the mortgage of its character,
which is to “secure the full and punctual payment and performance of
the Indebtedness.

Gloria’s Ranch L.L.C., 51,077 at 30-31, 223 So.3d at 1222.

We agree. Wells Fargo cannot be considered an “owner” of the lease by virtue

of an assignment. “The assignor transfers his entire interest in the lease insofar as it

affects the property on which the lease is assigned.” Roberson v. Pioneer Gas Co.,

173 La. 313, 319, 137 So. 46, 48 (1931). Because Cubic still maintained its working

interest in the property, the assignment argument fails.

However, the court of appeal did not end its analysis there. Citing La. Civ.

Code art. 477, the court of appeal found merit in Gloria’s Ranch’s argument that

Wells Fargo became an owner of the lease because it “controlled the bundle of rights

that make up ownership, i.e., the rights to use, enjoy, and dispose of the lease.”

Gloria’s Ranch L.L.C., 51,077 at 31, 223 So.3d at 1222. Specifically, the court of

appeal found the control Wells Fargo had over Cubic’s right to conduct oil and gas

operations on the property by virtue of the mortgage and the credit agreement rose

to the level of ownership, providing several examples that it classified as civilian

rights of “usus,” “fructus,” and “abusus.” The court of appeal noted the following

rights and provisions that it perceived as “rights of control”: the credit agreement’s

language that directed where the loan proceeds were to be spent; Wells Fargo’s right

to approve the location and depth of the wells; Wells Fargo’s ability to specify which

workovers and completions were to be performed; Wells Fargo’s requirement that

Cubic provide it with financial statements, Wells Fargo’s right to access Gloria’s

Ranch’s property; Wells Fargo’s overriding royalty interest and net profits interest;

and Wells Fargo’s requirement that Cubic obtain its written consent to release the

9

lease. For the following reasons, we find the court of appeal committed error in

holding that such rights, which are incidental to mortgage and credit agreement, rose

to the level of ownership of a mineral lease.

First, on a legal basis, we find no authority for superseding the ownership

principles set forth in the La. Mineral Code with those of the La. Civil Code. “The

provisions of [the La. Mineral] Code are supplementary to those of the Louisiana

Civil Code and are applicable specifically to the subject matter of mineral law.” La.

Mineral Code art. 2. As such, the La. Mineral Code governs the creation, ownership,

and transfer of mineral rights. Louisiana Mineral Code art. 16 provides that “[t]he

basic mineral rights that may be created by a landowner are the mineral servitude,

the mineral royalty, and the mineral lease.” Mineral leases are created by contract.

See La. Mineral Code art. 114. Ownership of the mineral lease can be transferred

by assignment or sublease. See La. Mineral Code art. 127. In the instance of

assignment or sublease, “[t]o 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. See La.

Mineral Code art. 128. We do not find where the La. Mineral Code addresses or

sanctions ownership of a lessee’s interest via a theory of control of rights.

Further, rights of ownership are distinguished from security rights in the La.

Mineral Code. Louisiana Mineral Code art. 203 provides:

A mineral right is susceptible of mortgage to the same extent and with
the same effect, and subject to the same provisions of rank, inscription,
reinscription, extinguishment, transfer, and enforcement as is
prescribed by law for mortgages of immovables under Article 3286 of
the Civil Code.

Louisiana Mineral Code art. 204 states:

A mortgage of mineral rights may also provide the pledge of minerals
subsequently produced to the extent of the mortgagor’s interest therein
or of the proceeds accruing from the sale or other disposition thereof...

10

Based on the foregoing, we find no authority for the court of appeal’s holding

that a mortgage and a credit agreement, which are both legally provided for in the

La. Mineral Code, can be methods by which ownership of a mineral lease are

conveyed simply because they assert some control over the collateral described

therein. We find the “bundle of rights” controlled by Wells Fargo are not traits of

ownership, but of security rights. The mortgage and credit agreement contain

provisions typical of security contracts, all designed to protect the collateral.

Importantly, none of the provisions of the mortgage or credit agreement

convey to Wells Fargo the right to explore for and produce minerals on the

property—the primary right granted in a mineral lease and the stamp of ownership

thereof. See La. Mineral Code arts. 6 and 114. Rather, the provisions incorrectly

held by the court of appeal as rights of “usus,” “abusus,” and “fructus” are security

interests and derivative interests related to the sole goal of safeguarding the collateral

(the lease). We find it unnecessary to address each provision in the contract because

we find that none of the provisions convey rights of ownership, taken individually

or as a whole. Rather, we will discuss broadly each category of rights as presented

by the court of appeal (“fructus,” “usus,” and “abusus”).

First, we note it is customary in the oil and gas industry for a lender to (1)

include restrictions on how the debtor/borrower will use the leased property, (2)

require full financial information with regard to the “status of the collateral

encumbered by the mortgage,” (3) require that the borrower “maintain the

encumbered mineral leases in force and effect,” and (4) allow inspection of the

premises, among other protective provisions. See, e.g., Patrick S. Ottinger, Louisiana

Mineral Leases: A Treatise, §12-10 (Claitor’s Law Book & Publishing Div., Inc.

2016).

11

As to the contracts at issue, Cubic contractually agreed that, only upon default,

it would pay to Wells Fargo the proceeds from production. This pledge of proceeds,

which is authorized by La. Mineral Code art. 204, is merely a security device – not

an assignment of the fructus (civil fruits) of the mortgaged property for purposes of

creating ownership or holding a mortgagee liable for the obligations of its debtor.

The existence of a security interest without more, does not subject a mortgagee to

liability for the mortgagor’s breach of the lease contract.8 Also, the pledge at issue

is conditional, and we find no record evidence that Cubic was ever in default or that

Wells Fargo ever exercised such rights so as to trigger the assignment of the

proceeds.

Regarding the purported “usus” (physical use) of the property, we find the

oversight rights, the right to enter the property, and the right for Wells Fargo to direct

“use of the proceeds,” among others, are typical rights of a secured creditor and exist

for the clear purpose of insuring the maintenance of the collateral. They do not

convey any rights of ownership. Rather, these rights are solely to keep the lender

abreast of the debtor’s ability to pay back the loan and remain informed of the

collateral’s condition.

The last category, the alleged right of abusus (alienation), merits additional

discussion inasmuch as Gloria’s Ranch and the lower courts emphasized the

provision which requires Wells Fargo’s consent as a prerequisite to Cubic releasing

its lease interest. First, we note that Cubic never requested Wells Fargo’s consent to

release the lease (or the mortgage thereof). Second, even if Wells Fargo had released

its mortgage, the lease still would not have been released as it relates to Gloria’s

Ranch. This is because there was never any privity of contract between Wells Fargo

and Gloria’s Ranch. The privity of contract existed between Gloria’s Ranch and its

8
See La. R.S. 10:9-402.
12

lessees pursuant to the mineral lease. A separate contractual relationship existed

between Wells Fargo and Cubic in the form of a mortgage and a credit agreement.

A breach of one contract does not directly impact the other contract so as to create a

cause of action where one does not exist. Namely, any failure of Wells Fargo to

consent to release the lease does not amount to a cause of action by Gloria’s Ranch

against Wells Fargo. Rather, if Cubic had requested Wells Fargo’s consent (of which

there is no record evidence) and Wells Fargo had withheld it, the recourse would not

be for Gloria’s Ranch to sue Wells Fargo. The only available recourse for Gloria’s

Ranch would be to sue the owners of the lease (the lessees), with whom it has privity

of contract. Cubic, in the event consent had been requested and withheld, could have

available to it a contractual claim against Wells Fargo in the form of indemnity, third

party demand, reimbursement, or some other incidental demand. See La. Code Civ.

P. art. 1031; see also Nassif v. Sunrise Homes, Inc., 98-3193, pp. 2-3 (La. 6/29/99),

739 So.2d 183, 185. However, this obligation is distinct and separate from that owed

by Cubic to Gloria’s Ranch. The clause in Cubic’s mortgage that requires Wells

Fargo’s consent to release the lease is merely a protection over its collateral, not an

element of ownership. As such, Wells Fargo cannot be held solidarily liable for the

obligation of an owner of the lease merely by virtue of its security interest.

Gloria’s Ranch also avers that if Wells Fargo had not released the mortgage,

there would be a cloud on the title and no buyer would want to acquire the lease.

This argument fails, though, because once the subject of the mortgage (the lease) no

longer exists, the mortgage no longer exists by operation of extinction. Louisiana

Civ. Code art. 3319(1) provides: “A mortgage is extinguished by the extinction or

destruction of the thing mortgaged.” Thus, in the event the lease was released by

Cubic, the mortgage would cease to exist. There would be no mortgage, then, to

“cloud” Gloria Ranch’s title. (See also La. Civ. Code art. 3282: “Mortgage is

13

accessory to the obligation that it secures. Consequently, except as provided by law,

the mortgagee may enforce the mortgage only to the extent that he may enforce any

obligation it secures.”)

Additionally, we find no merit to the argument that because Wells Fargo

acquired an overriding royalty interest 9 and net profits interest 10 from Tauren’s

interest in the lease, it somehow became an owner of the lease. These financial

interests are merely passive, derivative rights given in exchange for the cancellation

of Tauren’s mortgage. “The owner of a mineral royalty has no executive rights; nor

does he have the right to conduct operations to explore for or produce minerals.” La.

Mineral Code art. 81. These rights, which do not convey any authority to go onto

the property, drill, explore, or otherwise perpetuate an oil and gas lease, do not

amount to ownership and, thus, do not give rise to the obligations associated with

ownership, such as the payment of royalties, the maintenance of production in

paying quantities, or the release of the lease upon demand.

Last, we do not find the case is resolved by resort to a judicial admission, as

argued by Gloria’s Ranch. In initially opposing lease cancellation, Wells Fargo

stated in a pleading that it had a “leasehold interest.” Based on this statement,

Gloria’s Ranch argues Wells Fargo judicially confessed to ownership of the mineral

lease and should be held accountable for such admission. We reject this argument,

finding that Wells Fargo, at best, admitted to owning a security interest in the lease.

Whether that interest amounted to an ownership interest is a mixed question of law

and fact, requiring a review of the facts, an interpretation of the mortgage, and an

9
An overriding royalty is “[a]n interest in oil and gas produced at the surface, free of the expense
of production, and in addition to the usual landowner’s royalty reserved to the lessor in an oil and
gas lease.” 8 Williams & Meyers, Oil and Gas Law, Manual of Terms, p. 728 (2016).
10
A net profits interest is “[a] share of gross production from a property, measured by net profits
from operation of the property.” 8 Williams & Meyers, Oil and Gas Law, Manual of Terms, p.
649 (2016).

14

analysis of the law. Thus, whether, and to what extent, Gloria’s Ranch relied on this

so-called admission to its detriment is irrelevant. The transfer of a mineral lease to

create ownership cannot be created simply by judicial admission. Further, the

evidence contradicts the admission. As such, the admission cannot serve to

exclusively establish the “leasehold interest.”

In sum, we find that Wells Fargo, in its capacity as a creditor with only a

security interest in the mineral lease, is not solidarily liable with its debtor, the

mineral lessee, for obligations breached thereby. Wells Fargo acquired a mortgage

affecting the mineral lease in addition to a net profits interest and an overriding

royalty interest. These interests are solely accessory and derivative rights and do not

amount to rights of ownership. Because Wells Fargo is not a “former owner” under

La. Mineral Code art. 207, it cannot be held liable for any damages resulting from

the failure to release the lease.

With regard to the damages awarded for unpaid royalties for Section 15, we

employ the same analysis. Under La. Mineral Code art. 140, quoted infra, the law

holds a “lessee” liable for failure to pay royalties that are due. For the same reasons

that we hold a creditor is not liable as a “former owner” under La. Mineral Code art.

207, we find Wells Fargo not liable for unpaid royalties as a “lessee” under La.

Mineral Code art. 140. Accordingly, we reverse the judgment as to Wells Fargo.

Tauren

Tauren asks this court to find that the mineral lease was horizontally divided

when it conveyed its interest in the Deep Rights to EXCO. Such a finding, Tauren

argues, would mean that two leases were created, and Tauren could not be held

responsible for any obligations related to a lease it did not own. Thus, it argues the

damages caused by the failure to release the lease(s) back to Gloria’s Ranch (upon

termination and demand) should be paid jointly, with each lessee being responsible

15

only for its own lease obligations. Tauren contends most of the damages resulted

from the lost opportunity to lease the Deep Rights, over which it had no authority.

Accordingly, Tauren claims it cannot be held solidarily liable for the full damages.

Gloria’s Ranch, on the other hand, argues Tauren and its co-defendants are

each liable for the entirety of the damages for failing to release the lease. The court

of appeal found Tauren solidarily liable because “the obligation of the owners of the

lease to produce a recordable act evidencing the release of the lease was indivisible.”

Gloria’s Ranch L.L.C., 51,077 at 25, 223 So.3d at 1219. For the reasons that follow,

we agree that the obligation to release is indivisible.

An obligation is a legal relationship whereby a person, called the obligor, is

bound to render a performance in favor of another, called the obligee. La. Civ. Code

art. 1756. When different obligors owe together just one performance to one obligee,

but neither is bound for the whole, the obligation is joint for the obligors. La. Civ.

Code art. 1788. An obligation is indivisible when the object of the performance,

because of its nature or because of the intent of the parties, is not susceptible of

division. La. Civ. Code art. 1815. When a joint obligation is indivisible, joint

obligors are subject to the rules governing solidary obligors. La. Civ. Code art. 1789.

An indivisible obligation with more than one obligor or obligee is subject to the rules

governing solidary obligations. La. Civ. Code art. 1818. Solidarity of obligation

shall not be presumed. A solidary obligation arises from a clear expression of the

parties’ intent or from the law. La. Civ. Code art. 1796. When distinct obligors owe

the same indivisible performance to one obligee, they are solidarily bound to that

obligee, regardless of their intentions. La. Civ. Code art. 1818, Comment (b).

Tauren is indisputably a “former owner” of the mineral lease because it held

a 51% working interest in the Shallow Rights, as well as the surface rights and the

exclusive right to drill on the property. Thus, Tauren’s failure to release the lease

16

makes it liable to Gloria’s Ranch “for all damages resulting therefrom and for a

reasonable attorney’s fee incurred in bringing suit.” La. Mineral Code art. 207.

Tauren argues its own failure to release the lease should only be measured in

damages commensurate to the value of the Shallow Rights. However, under the

facts of this case, we find the obligation to release the lease is an indivisible

obligation under the La. Civil Code.11 As stated earlier, La. Civ. Code art. 1815

11
We expressly reject Tauren’s argument that the obligation to release was a divisible obligation
and that it only was responsible for the failure to release the Shallow Rights. We take particular
note that Tauren was the original lessee, who still owned an interest in the lease, which included
the “exclusive rights to enter upon and use the land” for the “exploration for and production of oil
[and] gas.” Tauren retained the surface rights and the corresponding right to drill thereon. Further,
the record shows that Tauren failed to disclose to EXCO, prior to its transfer of the Deep Rights,
the lease’s production shortcomings. Additionally, Tauren participated in the accounting
manipulations in an effort to make it appear that the lease was still producing in paying quantities.
These acts all led to the underlying failure to release the lease back to Gloria’s Ranch, which
necessitated judicial demand and the instant lawsuit. Accordingly, Tauren’s acts in large part
induced the other defendants not to release the lease. It cannot now attempt to escape liability by
arguing the lease was divided such that it was only required to release the Shallow Rights while
the others were obligated to release the Deep Rights.

Moreover, the record evidence reveals that the lease stopped producing in paying quantities
on or around July of 2008, well before the transfer of the deep rights to EXCO. Mike Cougevan,
an expert in oil and gas accounting and auditing, testified that the wells at issue were not producing
in paying quantities in the 18-month period prior to the January 2010 demand by Gloria’s Ranch.
Additionally, Robert McGowen, a petroleum engineer, stated in his appraisal:

Production and revenue information for the 9-1, 10-1, and 16-1 indicates that none
of these wells produced in paying quantities. The cost and revenue information for
the wells indicates shortly after each well was drilled, it began operating at a loss
that has only increased over time. By July 2008, the GR 9-1, 10-1, and 16-1 were
operating at a cumulative loss and never regained profitability.

He further testified that the lease was not producing in paying quantities for “the majority of the
life of the wells.” He opined that the lease was not being released due to speculative purposes and
in an attempt to hold the lease for unknown future activity. We note that such speculation is against
the law and public policy. See, e.g., Carter v. Arkansas-Louisiana Gas Co., 36 So.2d 28 (La.
1948).

Tauren’s expert, Michael McKenzie, a petroleum engineer, did not disagree with the
findings of Mr. McGowen or Mr. Blunk. Rather, he found that Tauren and Cubic’s “knowledge of
the potential of the Haynesville Shale, and its negotiations and eventual contract with EXCO” were
“consistent with the conduct of a reasonably prudent operator.” Notably, the finding of the lower
courts that the lease was no longer producing in paying quantities was not appealed to this court.

Thus, the lease expired in July 2008, by its own terms, which was before the 2009 transfer
to EXCO. (Louisiana Mineral Code art. 133 provides: “A mineral lease terminates at the
expiration of the agreed term or upon the occurrence of an express resolutory condition.”) We
acknowledge that the obligation to furnish a recordable act evidencing the expiration of the lease
(i.e., the obligation to release the lease), for purposes of damages, is tethered to written demand by
the landowner. See La. Mineral Code arts. 206 and 207, supra. However, because the lease
technically expired before the purported assignment of rights, we will not entertain a theory of
17

classifies an obligation as indivisible when the object of the performance is not

susceptible of division. An obligation is indivisible when the performance of the

obligation cannot be divided or when partial performance would be of little or no

use to the obligee. Sweet Lake Land & Oil Co. LLC v. Exxon Mobil Corp., 9-110,

2011 WL 5825791 (W.D. La. 11/16/11), citing 5 Saul Litvinoff, Louisiana Civil Law

Treatise, Law of Obligations § 9.2 (2011). When an obligation is indivisible, all

obligors must be held solidarily liable for the full performance. La. Civ. Code art.

1818.

The court in Sweet Lake, supra, was tasked with determining whether solidary

liability was appropriate in the context of a property restoration case. One of the

lessees argued it should only be held liable for the restoration of the property to the

extent of its fractional interest in the lease. The court disagreed, holding instead that

the obligation to restore the property was an indivisible obligation because

“[p]roperty is either restored or it is not.” Sweet Lake, 2011 WL 5825791 at 5. We

are influenced by the logic of this case and, likewise, find that the mineral lease at

issue was either released or it was not. It is clear that the release by only one lessee,

or less than all lessees, would have been of little or no use to Gloria’s Ranch insofar

as Gloria’s Ranch would have been prevented from granting a new lease to another

interested buyer. 12 Accordingly, we do not find it necessary to address the

divisibility as a manner by which Tauren can escape liability. In finding the obligation to release
to be an indivisible obligation in the context of these facts, we refuse to condone the acts of a lease
owner who knows its lease is not producing, misrepresents such to the landowner, holds the lease
for speculative purposes, finds a buyer at the eleventh hour before legal demand is made, and
assigns the Deep Rights in an effort to divide the lease and, thereby, dispose of its liability.

12
Tauren argues Gloria’s Ranch was not prevented from entering into a new lease; it claims, to
the contrary, that Gloria’s Ranch entered into two new leases with Chesapeake and EXCO,
respectively. However, we find that both of these leases were top leases and conditioned upon the
defendants’ release of the lease. For instance, Gloria’s Ranch entered into a lease with Chesapeake
for rights associated with Section 21. The contract, however, expressly states: “This Lease is
subordinate to that certain Oil, Gas, and Mineral Lease between Lessor and Tauren Exploration,
Inc. dated September 17, 2004 . . . Lessee shall have no rights under this Lease so long as the Prior
Lease is in effect with respect to the Leased Premises.” Further, the contract between Gloria’s
18

divisibility of the lease because we find the underlying obligation to release the lease

in this case is indivisible.13 As such, Tauren, as an owner of the lease, was properly

held liable in solido for the damages it caused.

Additionally, we find the unpaid royalties for Section 15 were directly

attributed to Tauren and Cubic’s failure to pay them; thus, Tauren cannot escape

liability under any theory of divisibility. Lepow, a member and manager for Gloria’s

Ranch, contacted Chesapeake to inquire about the payment of royalties that were

due. Lepow stated that SONRIS showed Chesapeake’s Soaring Ridge 15H (which

had been unitized to include Gloria’s Ranch’s property on Section 15) had been

producing since the summer of 2008. Chesapeake informed Gloria’s Ranch that

Tauren and Cubic were receiving payments from the well’s production. However,

Lepow testified that Gloria’s Ranch never received any of the royalty payments in

connection with Section 15. Further, the record contains a clear admission that

management knew of the obligation to pay royalties to Gloria’s Ranch in connection

with the Section 15 well and did not pay them. Accordingly, we find no error in the

assessment of damages against Tauren for the unpaid royalties related to Section 15.

We affirm the portion of the judgment as to Tauren’s liability.

Next, Tauren argues the lower courts erred in determining the amount of

damages due under La. Mineral Code art. 140. Louisiana Mineral Code art. 140

provides:

If the lessee fails to pay royalties due or fails to inform the lessor
of a reasonable cause for failure to pay in response to the required
notice, the court may award as damages double the amount of royalties
due, interest on that sum from the date due, and a reasonable attorney’s

Ranch and EXCO (and final payment in consideration thereof) was conditioned upon the release
of the Tauren lease or upon a final judgment cancelling that lease.
13
Because we find the obligation to release the lease to be a singular, indivisible obligation under
the circumstances of this case, we expressly reserve any judgment on whether a lease can be
divided by the assignment of depths and pretermit analysis of the language of the lease relevant
thereto. Our holding should be narrowly construed to the facts of this case.
19

fee regardless of the cause for the original failure to pay royalties. The
court may also dissolve the lease in its discretion. (Emphasis added).

As argued by Gloria’s Ranch, and as applied by the lower courts in the instant

case, the legislature intended to give the court discretion to effectively award treble

damages (the amount of royalties due plus a penalty of two times the amount of

royalties due). Contrarily, Tauren argues the article allows a court to impose a

maximum award of double the amount of royalties due.

The interpretation of a statute is a question of law and is reviewed by this court

under a de novo standard of review. Red Stick Studio Dev., L.L.C. v. State ex rel.

Dep’t of Econ. Dev., 10-0193 (La. 1/19/11), 56 So.3d 181, 184. As we explained in

M.J. Farms, Ltd. v. Exxon Mobil Corp., 07-2371, p. 13 (La. 7/1/08), 998 So.2d 16,

27 (internal citations omitted):

The function of statutory interpretation and the construction
given to legislative acts rests with the judicial branch of the
government. The rules of statutory construction are designed to
ascertain and enforce the intent of the Legislature. Legislation is the
solemn expression of legislative will and, thus, the interpretation of
legislation is primarily the search for the legislative intent. We have
often noted the paramount consideration in statutory interpretation is
ascertainment of the legislative intent and the reason or reasons which
prompted the Legislature to enact the law.

The starting point in the interpretation of any statute is the
language of the statute itself. When a law is clear and unambiguous and
its application does not lead to absurd consequences, the law shall be
applied as written and no further interpretation may be made in search
of the intent of the legislature.

Moreover, the words of a law must be given their generally prevailing

meaning. La. Civ. Code art. 11. Louisiana Mineral Code art. 140 provides in

pertinent part that “[i]f the lessee fails to pay royalties due . . ., the court may award

as damages double the amount of royalties due.” We find this language is a clear

authorization by the legislature for courts to award a maximum of two times the

amount of unpaid royalties, not three times the amount.

20

Gloria’s Ranch argues we are to assume that the article’s language implicitly

excludes the original amount of royalties due since the original amount would be

paid “as a sum of money that would be owed to [Gloria’s Ranch] in any event, as

[Gloria’s Ranch] is the rightful owner of those royalty interests,” (citing the court of

appeal’s holding in Cimarex Energy Co. v. Mauboules, 08-452, p.9 (La. App. 3 Cir.

3/11/09), 6 So.3d 399, 407). 14 Under this argument, La. Mineral Code art. 140

authorizes a “penalty” or “additional damages” of double that amount. Thus,

Gloria’s Ranch contends an award totaling three times the amount of unpaid

royalties is authorized.

However, if we are to give every word its generally prevailing meaning, we

are to read the word “damages” as it is generally meant. “An obligor is liable for the

damages caused by his failure to perform a conventional obligation.” La. Civ. Code

art. 1994. “Damages are measured by the loss sustained by the obligee and the profit

of which he has been deprived.” La. Civ. Code art. 1995. “The measure of damages

for a breach of contract is the sum that will place plaintiff in the same position as if

the obligation had been fulfilled.” Dixie Roofing Co. of Pineville, Inc. v. Allen Parish

Sch. Bd., 95-1526 (La. App. 3 Cir. 5/8/96), 690 So.2d 49, 56, writs denied, 96-2084

(La. 11/8/96), 683 So.2d 276, and 96-2100 (La. 11/8/96), 683 So.2d 277. Damages,

14
This court granted writs in Cimarex and reversed on other grounds. Cimarex Energy Co. v.
Mauboules, 09-1170 (La. 4/9/10), 40 So.3d 931, 952. However, Justice Knoll reached the issue
of double versus treble damages in her dissent:

The far more natural reading of article 212.23(C)[sic] is to permit the plaintiff a
total award of double the amount of unpaid royalties. As a simplified example, if
the unpaid royalties total $100, the court has discretion to “double” the award by
adding an additional $100 in statutory damages, for a total of $200. If the
Legislature had intended article [212.23C] to permit a treble damages award, it
would have said so. Several Louisiana statutes unambiguously permit an award of
treble damages. This is not one of them. Moreover, as Mineral Code article
[212.23C] is in the nature of a penal statute, it must be strictly construed in favor
of the defendant. Louisiana Bag Co. v. Audubon Indemnity Co., 08-0453 (La.
12/2/08), 999 So. 2d 1104, 1120.
21

then, are the judicial remedy whereby money replaces the obligation that was not

performed.

Based on this generally accepted definition of damages as compensation for

the loss sustained, we interpret La. Mineral Code art. 140 as authority to award up

to double the amount of royalties due. Clearly, an award of the amount of royalties

due is the compensation for the failure to perform that obligation. The use of the

permissive word “may” gives the court the authority to double that amount if the

court, in its discretion, finds the defendant’s conduct so warrants. A contrary reading

that assumes the unpaid royalties are something separate from “damages” ignores

the plain meaning of the word “damages.” We do not believe the law, as written,

leads to any absurd results, and, thus, we conduct no further investigation as to the

legislative intent. Accordingly, we amend the judgment to reflect that the damages

due under La. Mineral Code art. 140 are equivalent to two times the amount of

royalties due ($242,029.26 x 2= 484,058.52).

Cubic

Cubic filed a writ application, solely asking this court to reduce or eliminate

the award of attorney fees for work done on appeal. The trial court awarded Gloria’s

Ranch $925,603 for pretrial attorney fees and expert costs and $11,200 for attorney

fees incurred during the trial. For work done on appeal, the court of appeal awarded

an additional $125,000 in attorney fees. In so doing, the court of appeal stated:

After reviewing the record, we acknowledge the diligence,
tenacity, and expertise required by Gloria’s Ranch’s attorneys in
successfully defending the trial court’s judgment. Notably, Wells
Fargo did not hire separate counsel until after final judgment had been
rendered, and as a result, Gloria’s Ranch’s attorneys were forced to
vehemently defend Wells Fargo’s solidary liability on motion for new
trial and appeal. Considering the length and complexity of this 19-
volume case, Gloria’s Ranch is entitled to $125,000 in additional
attorney fees for work done on appeal.

Cubic argues this award is excessive.

22

Additional attorney fees for work done on appeal can be available when a

party is entitled to an attorney fee by statute or contract, actually receives one at trial,

and defends the defendant’s unsuccessful appeal. Frith v. Riverwood Inc., 04-1086

(La. 1/19/05), 892 So.2d 7. The court of appeal based its award of additional

attorney fees on the work necessitated by the enrollment of Wells Fargo’s new

counsel. Because we herein reverse the judgment as to Wells Fargo, we find Gloria’s

Ranch is not due additional attorney fees for defending an appeal that was ultimately

successful. To the extent the additional attorney fees represented work done with

regard to Tauren and Cubic’s appeals, we reduce the judgment from $125,000 to

$50,000.

CONCLUSION

Based on the foregoing, we find the lower courts improperly held Wells Fargo

liable as an “owner” under La. Mineral Code art. 207 and a “lessee” under La.

Mineral Code art. 140. Thus, we reverse the judgment as to Wells Fargo. Second,

we affirm the judgment of solidary liability against Tauren, finding the obligation to

furnish a recordable act evidencing the release of the lease is an indivisible obligation

under the facts of this case. Third, we amend the amount of damages awarded under

La. Mineral Code art. 140 to reflect a maximum award of double the amount of

unpaid royalties. Last, we amend the amount of attorney fees awarded for work

done on appeal.

REVERSED IN PART; AMENDED IN PART; AND AFFIRMED AS

AMENDED.

23

06/27/18

SUPREME COURT OF LOUISIANA

No. 2017-C-1518

CONSOLIDATED WITH

No. 2017-C-1519

CONSOLIDATED WITH

No. 2017-C-1522

GLORIA’S RANCH, L.L.C.
VERSUS
TAUREN EXPLORATION, INC., CUBIC ENERGY, INC., WELLS FARGO
ENERGY CAPITAL, INC., AND EXCO USA ASSET, INC.

ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
SECOND CIRCUIT, PARISH OF CADDO

WEIMER, Justice, concurring in part and dissenting in part.

I concur in the result related to the liability of Tauren Exploration, Inc. I agree

that the finding of liability is limited to the facts of this case. As such, I find that the

discussion regarding the indivisibility of the release of the lease is unnecessary.

I dissent regarding the amount awarded in attorney fees, finding the amount

awarded excessive.

06/27/18

SUPREME COURT OF LOUISIANA

No. 2017-C-1518

CONSOLIDATED WITH

No. 2017-C-1519

CONSOLIDATED WITH

No. 2017-C-1522

GLORIA'S RANCH, L.L.C.

VERSUS

TAUREN EXPLORATION, INC., CUBIC ENERGY, INC., WELLS FARGO
ENERGY CAPITAL, INC., AND EXCO USA ASSET, INC.

ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
SECOND CIRCUIT, PARISH OF CADDO

GENOVESE, Justice, dissents in part.

I dissent in part with respect to this Court’s interpretation of La. Mineral Code

art. 140’s provision of damages. In all other aspects, I fully agree with the majority’s

opinion.

With respect to the issue of damages provided in this case, La. Mineral Code

art. 140 provides that “[i]f the lessee fails to pay royalties due…, the court may award

as damages double the amount of royalties due….” While this article does not

expressly provide for “treble damages,” it does provide that a court, in its discretion,

may award as damages double the amount of unpaid royalties, in addition to the

actual royalties due. This article’s use of the word “may” indicates a discretionary

award. Under the majority’s interpretation, the award of the actual royalties due is

necessarily part of the court’s discretionary award. This interpretation leads to

absurd results.

A clear reading of La. Mineral Code art. 140 recognizes and acknowledges

two awards under the umbrella of damages for nonpayment of royalties: 1) an award

for the amount of royalties due; and 2) a discretionary award of a penalty of double

the amount of royalties due. The majority interprets La. Mineral Code art. 140 as

authority to award only “up to” double the amount of royalties due. Following this

logic, the penalty award of damages includes the royalties award. Thus, Gloria’s

Ranch would only get the penalty portion of the damage award and not the royalties

and the penalty. The statute does not say “up to;” it says “the court may award as

damages double the amount of royalties due….” Nowhere in the statute does it state

that royalties are subsumed or included in any damage award.

Consequently, in my view, under La. Mineral Code art. 140, Gloria’s Ranch

is entitled to the royalties due and owing as part of its damage award, and it is also

entitled to a penalty double the amount of said royalties for nonpayment of the same.

The trial court’s award did not constitute double damages. Rather, Gloria’s Ranch

was rightfully awarded its royalties due, plus the trial court’s discretionary penalty

award of double damages.

The interpretation that La. Mineral Code art. 140 allows for double damages

in addition to the payment of the royalties due is also supported by the language of

the preceding article, which applies in cases where royalties due are paid late, after

the lessee’s receipt of the required notice from the lessor. This article, entitled

“Effect of payment in response to notice,” states:

If the lessee pays the royalties due in response to the required notice,
the remedy of dissolution shall be unavailable unless it be found that
the original failure to pay was fraudulent. The court may award as
damages double the amount of royalties due, interest on that sum
from the date due, and a reasonable attorney's fee, provided the original
failure to pay royalties was either fraudulent or willful and without
reasonable grounds. In all other cases, such as mere oversight or
neglect, damages shall be limited to interest on the royalties computed
from the date due, and a reasonable attorney's fee….

La. R.S. 31:139 (emphasis added).

2

This article, which uses the exact same language presently at issue in La.

Mineral Code art. 140, is discussing a discretionary award of additional damages

where the royalties in question have already be paid in response to a notice

provided by the lessee. It would be nonsensical for damages to be greater in a case

where the royalties were paid late than in a case falling under La. Mineral Code art.

140, where they have not been paid at all. As the Court of Appeal explained:

Under [La. Mineral Code] Article 139, when a lessee pays the royalties
due after receiving notice of nonpayment from the lessor, the trial court
“may award as damages double the amount of royalties due,” if the
original failure to pay was either fraudulent or willful and without
reasonable grounds. Thus, the phrase “damages double the amount of
royalties due” in Article 139 strictly pertains to punitive damages and
excludes the actual royalties due. In keeping with the spirit of Article
139, we find the legislature enacted Article 140 to provide the trial court
with the option of awarding punitive damages totaling up to double the
amount of royalties due for the lessee's failure to pay the royalties. As
a result, the trial court was within its discretion in awarding Gloria's
Ranch $242,029.26 in unpaid royalties, plus an additional $484,058.52
in punitive damages for the defendants' failure to pay the royalties.

Gloria's Ranch, L.L.C. v. Tauren Expl., Inc., 51,077 (La. App. 2 Cir. 6/2/17), 223

So. 3d 1202, 1216.

The majority relies on the “generally accepted definition of damages as

compensation for the loss sustained” for its interpretation that the royalties due are

part of the damages contemplated by La. Mineral Code art. 140. Slip Opinion at 20.

However, as noted above, this interpretation does not square with the language of

the preceding article. In my opinion, both articles clearly provide for an additional

damage award above the royalties due. Thus, I would affirm the lower courts’

damage award.

3