Dore Energy Corporation v. Carter-Langham, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

08-645

DORE ENERGY CORPORATION

VERSUS

CARTER-LANGHAM, INC., ET AL.

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APPEAL FROM THE
THIRTY-EIGHTH JUDICIAL DISTRICT COURT
PARISH OF CAMERON, NO. 10-16202
HONORABLE H. WARD FONTENOT, DISTRICT JUDGE

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OSWALD A. DECUIR
JUDGE

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Court composed of Ulysses Gene Thibodeaux, Chief Judge, and Oswald A. Decuir
and Marc T. Amy, Judges.

REVERSED AND RENDERED.

Gladstone N. Jones, III
Eberhard D. Garrison
Kevin E. Huddell
Jones, Swanson, Huddell & Garrison, L.L.C.
601 Poydras Street, Suite 2655
New Orleans, LA 70130
(504) 523-2500
Counsel for Plaintiff/Appellant:
Dore Energy Corporation

Jennifer Jones
Glenn W. Alexander
Jones & Alexander
P.O. Box 1550
Cameron, LA 70631
(337) 494-5563
Counsel for Plaintiff/Appellant:
Dore Energy Corporation

Bernard E. Boudreaux, Jr.
Breazeale, Sachse & Wilson, L.L.P.
P.O. Box 3197
Baton Rouge, LA 70821
(225) 387-4000
Counsel for Plaintiff/Appellant:
Dore Energy Corporation

Harry T. Lemmon
Attorney at Law
650 Poydras Street, Suite 2335
New Orleans, LA 70130
(504) 581-2155
Counsel for Plaintiff/Appellant:
Dore Energy Corporation

Donald R. Abaunza
Joe B. Norman
R. Keith Jarrett
Joseph I. Giarrusso, III
Liskow & Lewis
One Shell Square, 50th Floor
New Orleans, LA 70139
Counsel for Defendant/Appellee:
ExxonMobil Oil Corporation
Mobil Oil Exploration & Producing Southeast, Inc.
Socony Mobil Company, Inc.
Magnolia Petroleum Company

Patrick W. Gray
Amy A. Lee
Johnson Gray McNamara
P.O. Box 51165
Lafayette, LA 70505
(337) 412-6003
Counsel for Defendant/Appellee:
ExxonMobil Oil Corporation
Mobil Oil Exploration & Producing Southeast, Inc.
Socony Mobil Company, Inc.
Magnolia Petroleum Company

Lawrence P. Simon, Jr.
George E. Arceneaux
Liskow & Lewis
P.O. Box 52008
Lafayette, LA 70505-2008
(337) 232-7424
Counsel for Defendant/Appellee:
ExxonMobil Oil Corporation
Mobil Oil Exploration & Producing Southeast, Inc.
Socony Mobil Company, Inc.
Magnolia Petroleum Company

DECUIR, Judge.

The plaintiff, Doré Energy Corporation, appeals a judgment of the district court

granting the defendants’ motions for directed verdict and JNOV and dismissing its

petition with prejudice. For the following reasons, we reverse.

FACTS

Doré Energy owns approximately 18,000 acres of land in Cameron Parish. In

1927, Doré’s predecessor as owner, Cameron Meadows Land Company (CMLC),

granted a mineral lease to H.M. Henshaw (the “Henshaw lease”). Shortly thereafter,

Henshaw entered into an agreement styled an assignment of lease whereby he

transferred all interest in the lease, with the exception of a small overriding royalty

interest, to Vacuum Oil. A series of conveyances followed to various entities, one of

which was the defendant, ExxonMobil Oil Corporation (Exxon). Exxon acted as

operator of the lease for some twenty-one years. Eventually, Exxon released much

of the leased acreage and conveyed other portions prior to Doré’s purchase of the

property in 1995.

Doré at some point determined that the property was severely damaged by

canals and oilfield wastes. Doré instituted this suit against twenty-one corporations

and one individual who had “at various times conducted oil and gas exploration and

production operations” seeking compensation for the damages caused by defendants.

Doré Energy sought general and punitive damages as well as contract damages for the

costs associated with cleaning up and restoring the land. Prior to trial, Doré indicated

that it had settled with all of the defendants except Exxon Mobil Oil Corporation.

Exxon filed exceptions of no right of action and prescription which the trial court

deferred to the merits. At the close of trial, Exxon moved for a directed verdict on the

issue of prescription and the motion was granted by the trial court. The remaining

issues were submitted to the jury which awarded Doré fifty-seven million dollars

($57,000,000.00) in damages. Exxon moved for JNOV, which the trial court granted.

Doré lodged this appeal.

JNOV

Doré contends that the trial court erred in granting the JNOV. Specifically,

Doré argues that the trial court incorrectly concluded that the jury erred in awarding

contract damages because of a lack of privity between Doré and Exxon. We agree.

In Moore v. Acadian Ambulance Air Med, 07-1402, p. 2 (La.App. 3 Cir.

5/28/08), 983 So.2d 989, 991, this court reiterated that in reviewing a trial court’s

grant of JNOV the Louisiana Supreme Court has consistently phrased the relevant

inquiry as:

[D]o the facts and inferences point so strongly and overwhelmingly in
favor of the moving party that reasonable men could not arrive at a
contrary verdict? If the answer to that question is in the affirmative,
then the trial judge was correct in granting the motion. If, however,
reasonable men in the exercise of impartial judgment might reach a
different conclusion, then it was error to grant the motion and the jury
verdict should be reinstated.

Anderson v. New Orleans Public Service, Inc., 583 So.2d 829, 832 (La.1991).

The trial court concluded that a reasonable jury could not have concluded that

privity of a contract existed between Doré and Exxon because the original transfer

between Henshaw and Vacuum Oil was a sublease rather than an assignment, and

there is no privity between a lessor and a sub-lessee. See Smith v. Sun Oil Company,

165 La. 907, 116 So. 379 (1928). However, as Doré points out, this rule had not

been explicitly enunciated at the time the agreement in this case was confected in

1927.

Our inquiry, therefore, must begin with the contract between Henshaw and

Vacuum Oil. A lease agreement, like other contracts, is the law between the parties

and the courts are bound to interpret them according to the common intent of the

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parties. La.Civ.Code arts. 1983 and 2045. If the words of the contract are clear,

unambiguous, and lead to no absurd consequences, the court need not look beyond

the contract language to determine the true intent of the parties. La.Civ.Code art.

2046. “Each provision in a contract must be interpreted in light of the other

provisions so that each is given the meaning suggested by the contract as a whole.”

La.Civ.Code art. 2050. “Contracts, subject to interpretation from the instrument’s

four corners without the necessity of extrinsic evidence, are to be interpreted as a

matter of law, and the use of extrinsic evidence is proper only where a contract is

ambiguous after an examination of the four corners of the agreement.” Wright v. 3P

Delivery, LLC, 07-683, p. 3 (La.App. 3 Cir. 10/31/07), 970 So.2d 1171, 1173, writ

denied, 976 So.2d 718, quoting Kappa Loyal, L.L.C. v. Plaisance Dragline &

Dredging Co., Inc., 03-124, p. 7 (La.App. 5 Cir. 6/19/03), 848 So.2d 765, 769, writ

denied, 03-2348 (La. 12/12/03), 860 So.2d 1154. “In cases in which the contract is

ambiguous, the agreement will be construed according to the intent of the parties.”

Id. “Intent is an issue of fact which is to be inferred from all of the surrounding

circumstances.” Id. “A doubtful provision must be interpreted in light of the nature

of the contract, equity, usages, the conduct of the parties before and after the

formation of the contract, and other contracts of a like nature between the same

parties. LSA-C.C. art.2053.” Id. “Whether a contract is ambiguous or not is a

question of law.” Id. “Where factual findings are pertinent to the interpretation of

a contract, those factual findings are not to be disturbed unless manifest error is

shown.” Id. (Footnote omitted.)

In this case, the initial contract between Henshaw and Vacuum Oil Company

(Vacuum) was titled an assignment. The fact that Henshaw maintained an override

did not change the parties’ intent to assign the lease. The clearest evidence of this is

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that Vacuum’s successors, Magnolia Petroleum Company (Magnolia) and Humble

Oil & Refining Company (Humble) entered into agreements to amend the original

lease with the original lessor, CMLC. Henshaw was not a party to either of these

contracts. In order for the amendment to be valid, Magnolia and Humble had to be

assignees of the original lease. Moreover, the April 5, 1951, amendment specifically

states: “By virtue of subsequent assignments the above oil and gas lease and all

rights thereunder are now owned by Magnolia Petroleum Company and Humble Oil

& Refining Company.”

This court reached a similar conclusion in Cameron Meadows Land Co. v.

Bullard, (La.App. 3 Cir. 1977), 348 So.2d 193. The court reviewing the same

assignment at issue here concluded that the trial court was correct in characterizing

the contract as a sublease under Smith v. Sun Oil Company and its progeny.

However, the court found that this was no ordinary lease insofar as it conveyed the

right for the sublessee to release sections of leased property back to the landowners

without the consent of Henshaw. Had the court instead found that (1) the original

assignment of lease was unambiguous, or (2) the original agreement between the

parties was intended to be an assignment, and (3) the parties for forty-three years

treated the agreement as an assignment, and (4) therefore, it was unnecessary to

reference the general jurisprudential rule, we would perhaps not be facing the issue

once again. Accordingly, we find that reasonable jurors could have concluded the

contract at issue in this case is an assignment of lease, despite the reservation of an

overriding royalty by Henshaw and, therefore, that privity existed between Exxon and

Doré.

The trial court, working from the assumption that the Mineral Code could not

be applied retroactively, also concluded that JNOV was required despite the fact that

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Article 128 provides specifically that “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.” La.R.S. 31:128. The issue of retroactivity

with regard to the Mineral Code is not actually that clearly defined. La.R.S. 31:214

provides that the mineral code is applicable to all mineral rights, including those

existing on the effective date of the code, but that no provision may be applied to

divest already vested rights or to impair contractual obligations. However, the

comments to this section state explicitly:

There are strong reasons why the Mineral Code should be
retrospective, at least in the sense that to the extent possible it should
apply to existing rights. There are many mineral servitudes, mineral
royalties, and mineral leases outstanding at any given point in time. If
comprehensive mineral legislation were made applicable only to rights
created after its effective date, the number of outstanding rights at that
time would assure that there would be two clear and distinct bodies of
mineral law in the state for many years to come. One would be the “old
law” as developed by analogy to provisions of the Civil Code which
would apply to rights already existing on the effective date of the
legislation. The other would consist of the Mineral Code and the
interpretive jurisprudence applicable to rights created after enactment of
the Mineral Code. The resultant difficulties in judicial administration
are readily discernible. Additionally, the purpose of codification would
be substantially frustrated.

The chosen approach to this problem is to adopt a general
principle making the provisions of the code retrospective in operation
to the extent not violative of the state and federal constitutions. Thus,
unless an individual can satisfy a court that he is deprived of a vested
right without just compensation or that the obligations of a contract are
impaired, the rules specified in the Mineral Code apply to both existing
and future rights. This approach was regarded as the only practical one.

La.R.S. 31:214. Considering, the language of the Mineral Code and the

accompanying comments, the question of retroactive application could turn on the

question of whether Exxon had a vested right in the lack of privity defense.

Our jurisprudence has consistently held that the mineral code is applied

retroactively where the particular issue has not been resolved to the contrary by

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pre-code litigation. Cox v. Sanders, 421 So.2d 869 (La.1982); Continental Group,

Inc. v. Allison, 404 So.2d 428 (La.1981). As Bullard illustrates, pre-code

jurisprudence was not so clearly settled that it vested Exxon with rights that prohibit

retroactive application.

Finally, Doré presented the expert opinion of Professor Saul Litvinoff and

Exxon countered with the expert opinion of Professor Alain Levasseur regarding

whether privity existed or whether Exxon was equitably or judicially estopped from

raising the issue. Given that these esteemed scholars differed in their opinions, it is

difficult to see how the trial court could find that reasonable jurors could not conclude

that privity existed.

After careful review of the record, we find the jury could have reasonably

concluded that the actual nature of the contract between Henshaw and Vacuum or the

subsequent amendments between Exxon’s predecessors and CMLC constituted an

assignment of the lease rather than a sublease. Accordingly, given the stringent

standard of review enunciated by the Louisiana Supreme Court in Anderson, we find

the trial court erred in granting JNOV in favor of Exxon.

Because our resolution of the foregoing is dispositive, we pretermit discussion

of Doré’s remaining assignment. We find further that Exxon has failed to establish

solidarity with the settling defendants and, therefore, its assertion that it is entitled to

a reduction in judgment has no merit.

DECREE

For the foregoing reasons, the judgment of the trial court is reversed and

judgment is entered in favor of Doré Energy Corporation and against ExxonMobil

Oil Corporation in the amount of fifty-seven million dollars ($57,000,000.00),

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together with legal interest from the date of judicial demand until paid. All costs of

these proceedings are taxed to Exxon.

REVERSED AND RENDERED.

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