Clovelly Oil Co., Inc. v. Midstates Petroleum Co., LLC

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

CA 09-1230

CLOVELLY OIL CO., INC.

VERSUS

MIDSTATES PETROLEUM CO., LLC

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APPEAL FROM THE
THIRTEENTH JUDICIAL DISTRICT COURT
PARISH OF EVANGELINE, NO. 70728-B
HONORABLE THOMAS F. FUSELIER, DISTRICT JUDGE

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BILLY HOWARD EZELL
JUDGE

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Court composed of John D. Saunders, Oswald A. Decuir, and Billy Howard Ezell,
Judges.

REVERSED AND REMANDED.

Raymond Anthony Beyt
Beyt & Beyt
P. O. Box 52157
Lafayette, LA 70505
(337) 233-6771
Counsel for Defendant/Appellee:

Midstates Petroleum Company, LLC
Marshall Taylor Darden
Carver, Darden, Koretzky, Tessier, Finn, Blossman & Arceaux, LLC
1100 Poydras Street, Suite 3100
New Orleans, LA 70163
(504) 585-3800
Counsel for Plaintiff/Appellant:
Clovelly Oil Company, LLC

EZELL, JUDGE.

In this matter, Clovelly Oil Company appeals the granting of Midstates

Petroleum Company’s motion for summary judgment dismissing its declaratory action

and suit for breach of contract. For the following reasons, we hereby reverse the

grant of summary judgment and remand this case to the trial court.

By assignment and bill of sale dated September 1, 2007, Midstates acquired

mineral leases, wells, agreements, and equipment located in Evangeline Parish from

Opex Energy. The contract included (original emphasis removed, bold emphasis

ours):

All operating agreements, joint venture agreements, seismic
exploration agreements, area of mutual interest agreements, farmout and
farmin agreements, pooling unitization agreements, pooling
declarations, Orders, allowables, records, certificates, permits, licenses,
right-of-way, servitudes or easements, logs, seismic lines, cores,
cuttings, samples and other technical data (and maps or interpretations
of any of the foregoing), options, division orders, transfer orders,
production sales contracts, purchase, sale, exchange, and processing
agreements and all other contracts, agreements and instruments affecting
the production, storage, treatment, transportation, processing or sale or
other disposal of Hydrocarbons, including, without limitation, all of the
rights, title and interest acquired by Assignor by virtue of that certain
Partial Assignment and Bill of Sale dated effective June 1, 2005, and
recorded in Book 145, Page 377, under File No. 547553 of the
Conveyance Records of Evangeline Parish, Louisiana (hereinafter
referred to as “Subject Agreements”).

The assignment went further to state that Midstates:

accepts this Assignment and Bill of Sale and acknowledges delivery of
the Assigned Interests. Assignee hereby assumes and acknowledges
responsibility for satisfaction and discharge, at its sole cost, risk and
expense, of all obligations and liabilities of Assignor specified in,
associated with or accompanying the Assigned Interests, subsequent
to the Effective Time hereof, and generally and specifically all
obligations relating to the ownership or use thereof.

One of the agreements Opex had when the assignment to Midstates was made

was a joint operating agreement (JOA) with Clovelly. This JOA had been originally

signed in 1972 and had passed to both Opex and Clovelly as successors in interest to

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the original parties. The JOA covered all wells and operations confined within parts

of Evangeline Parish defined as the “Unit Area.” Clovelly owned a 56.25% working

interest in the Unit Area, while Opex owned 43.75% prior to the assignment to

Midstates. Clovelly was also appointed operator of all leases within the Unit Area

by the JOA. This JOA was never recorded in the Evangeline Parish public records.

Around September 1, 2007, Midstates began conducting exploration and

development on lands within the Unit Area without notification to Clovelly. On May

7, 2009, Clovelly filed the current suit seeking a declaratory judgment that Midstates

was bound by the terms of the JOA previously held by Opex. Midstates filed a

motion for summary judgment in response to the suit. The trial court granted

Midstates’ motion for summary judgment, finding that under the Louisiana Public

Records Doctrine, Midstates was not bound by unrecorded contracts, thereby

dismissing Clovelly’s claims. From that decision, Clovelly appeals.

Clovelly asserts two assignments of error on appeal, both alleging that the trial

court erred in granting summary judgment where there existed genuine issues of

material fact.

Summary judgments are reviewed de novo on appeal, with the
reviewing court using the same criteria that govern the trial court’s
determination of whether summary judgment is appropriate; whether
there is any genuine issue of material fact, and whether the movant is
entitled to judgment as a matter of law. Power Marketing Direct, Inc.
v. Foster, 05-2023 (La.9/6/06), 938 So.2d 662, 669; Smith v. Our Lady
of the Lake Hosp., Inc., 93-2512 (La.7/5/94), 639 So.2d 730, 750.

A motion for summary judgment will be granted “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, 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. Proc. art. 966(B).

Louisiana Safety Ass’n of Timbermen Self-Insurers Fund v. Louisiana Ins. Guar.

Ass’n, 09-23, p.5 (La. 6/26/09), 17 So.3d 350, 353.

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The trial court relied on the Louisiana Public Records Doctrine in making its

decision. The public records doctrine and its basic principles of recordation are set

forth in La.Civ.Code arts. 3338 and 3342, “which protect third persons from the 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). It is undisputed that the JOA in this matter was not

recorded in the public records. However, as noted in J & R Enterprises-Shreveport,

L.L.C. v. Sarr, 43,364, p.10 (La.App. 2 Cir. 8/13/08), 989 So.2d 235, 241:1

As an exception to our public records law and the doctrine’s protection
of third persons who rely on same, a person who by contract assumes an
obligation or is bound by contract to recognize it is not a third person
with respect to the obligation or right or to the instrument creating or
establishing it.

Accordingly, if Midstates assumed the JOA under its assignment from Opex,

it can not claim protection as a third person under the Public Records Doctrine. This

is clearly a genuine issue of material fact and is indeed in dispute. Clovelly claims

that Midstates knew of the JOA when it wrote the language of the assignment

declaring “[a]ll operating agreements, [and] joint venture agreements” as assigned

interests and before assuming “all obligations” of Opex. Midstates admits that no less

than four copies of the JOA were present in the Opex documents viewed as part of

its due diligence prior to the assignment. And while Midstates claims the all-

inclusive language it used in the agreement was standard “boilerplate” language, as

the drafter of the contract, any ambiguities are to be construed against it. Aptaker v.

Centennial Ins. Co. of New York, 198 So.2d 188 (La.App. 1 Cir.1967). Clovelly also

introduced an affidavit from an Opex employee familiar with the transaction stating

that Opex intended to assign the JOA to Midstates as part of the deal. Again, if it

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citing La. C.C. art. 3343; Bradley v. Sharp, 35,034 (La.App. 2 Cir.8/22/01), 793 So.2d 500,
writ denied, 01-2618 (La.12/14/01), 804 So.2d 633

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assumed the JOA as part of the assignment from Opex, Midstates can not disregard

that agreement simply because that document was not recorded in the public records

under La.Civ.Code art. 3343. This is a genuine issue of material fact that is in

dispute.

Additionally, there remain genuine issues of material fact as to whether

Midstates, at a minimum, tacitly confirmed or ratified the JOA by acting in

compliance therewith following the assignment. See La.Civ.Code art. 1843. The

affidavits of Paul Gardner and Harold Werner indicate that Midstates may have acted

in conjunction with the JOA in its dealings with Clovelly after it assumed Opex’s

rights, and there is no evidence in the record before this court contrary to this

assertion.

The existence of these genuine issues of material fact dictate that, while

Midstates may ultimately succeed at trial on this matter, this case is not presently

suitable for summary judgment. Accordingly, we reverse the decision of the trial

court and remand this matter for further proceedings in compliance with this decision.

For the above reasons, the decision of the trial court is hereby reversed. We

remand for further proceedings consistent with this opinion. Costs of this appeal are

hereby assessed against Midstates Petroleum Company.

REVERSED AND REMANDED.

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