Midstates Petroleum Co., LLC v. State of Louisiana Mineral & Energy Board

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

14-1168

MIDSTATES PETROLEUM, LLC

VERSUS

STATE MINERAL AND ENERGY BOARD OF THE STATE OF
LOUISIANA, ALVIN & LOUISE ALBRITTON MEMORIAL
FUND, LLC, AND ASA PROPERTIES, LP

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APPEAL FROM THE
THIRTY-SIXTH JUDICIAL DISTRICT COURT
PARISH OF BEAUREGARD, DOCKET NO. C-2012-1108-B
HONORABLE C. KERRY ANDERSON, DISTRICT JUDGE
**********

SYLVIA R. COOKS
JUDGE

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Court composed of Sylvia R. Cooks, Shannon J. Gremillion and David Kent
Savoie, Judges.

AFFIRMED.

James D. “Buddy” Caldwell, Attorney General
Ryan M. Seidemann, Assistant Attorney General
Stephen B. Jones, Assistant Attorney General
Megan K. Terrell, Assistant Attorney General
Ethel S. Graham, Assistant Attorney General
P.O. Box 94005
Baton Rouge, La. 70804-9005
Telephone: (225) 326-6085
ATTORNEYS FOR PLAINTIFF/APPELLANT
State Mineral and Energy Board of the State of Louisiana

Jamie Manuel
Mayhall Fondren Blaize
5800 One Perkins Place Dr., Suite 2-B
Baton Rouge, La. 70808
Telephone: (225) 810-4998
ATTORNEY FOR DEFENDANTS/APPELLEES
ASA Properties, L.P., Alvin and Louis Albritton Memorial Fund, L.L.C.

COOKS, Judge.

This appeal involves the title to minerals underlying a forty-acre tract of

immovable property located in Beauregard Parish. Appellant in this matter argues

the trial court erred in granting appellees’ motion for summary judgment finding

appellees were the legal owners of the minerals underlying the subject property.

For the following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

The underlying facts in this case are not in dispute. In 1858, the State of

Louisiana sold a piece of land to John Laidlaw. The State later determined it did

not own just title to the land sold to Laidlaw, as the property had previously been

sold by the federal government. All parties agree the original sale was for both the

land and the minerals underlying the property. In 1888, the State of Louisiana

passed Act 104 of 1888, which allowed the State to keep money from the sale of

property it did not own and in its place issue a land or lieu warrant. Upon

presentation of this lieu warrant at a future date, suitable land would be found to

satisfy the previous erroneous sale.

On August 28, 1919, Warrant No. 188 was issued by the State under Act 104

of 1888 to John Laidlaw. The heirs of John Laidlaw assigned their rights under the

lieu warrant to Alvin R. Albritton. In 1943, Albritton applied for a patent to satisfy

the rights acquired under the lieu warrant. The State Land Office then issued

Patent No. 13651 in 1944 to Albritton. However, in the intervening years (after

Warrant No. 188 was issued in 1919, but before Patent No. 13651 in 1943) the

State passed the 1921 Constitution, which in Section 2, Article 4, contained a

prohibition against the sale of mineral rights by the State, providing in pertinent

part:

In all cases the mineral rights on any and all property sold by
the State shall be reserved, except where the owner or other person

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having the right to redeem may buy or redeem property sold or
adjudicated to the State for taxes.

The State argued any land transferred subsequent to the passage of the 1921

Constitution would be subject to the constitutionally imposed mineral reservation.

Thus, the State contends the land acquired by Warrant No. 188 and Patent No.

13651 is subject to the above mineral rights reservation and the ancestors to Alvin

Albritton did not, and could not, obtain the mineral rights on the property acquired

from the State subsequent to the passage of the 1921 Constitution’s prohibition

against the sale of mineral rights.

In 2011, the ancestors in title to Alvin Albritton, ASA Properties, L.P., the

Alvin & Louise Albritton Memorial Fund, L.L.C., and the Alvin & Louise

Albritton Memorial Fund II, L.L.C. (hereafter “the Albrittons”), claiming to be an

owner of the undivided interest in and to the minerals in and under the property in

question acquired by Warrant No. 188, granted an Oil, Gas and Mineral Lease to

MidStates Petroleum Company. However, in August 2012, also claiming to be the

owner of the minerals in and under the same land, the State Mineral and Energy

Board of the State of Louisiana (hereafter “the State”) entered into an operating

agreement with MidStates. In late 2011, MidStates drilled a well, which began

producing oil and gas on the subject property. Given the confusion over the

ownership of the minerals on the property, on December 18, 2012, MidStates filed

a Petition for Concursus and deposited all proceeds earned up to that point into the

registry of the court.

The present matter came before the trial court on a Motion for Summary

Judgment filed June 17, 2013 on behalf of the State, asserting it should be declared

the owner of 100% of the oil, gas and mineral rights situated in, on, or under the

subject property. The Albrittons filed a cross Motion for Summary Judgment,

contending they should be declared owners of the minerals underlying the subject

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property. The parties filed memoranda in support of their respective positions and

a hearing was held. The trial court rendered judgment denying the State’s motion

for summary judgment and granting the Albritton’s motion, providing the

following written reasons for judgment:

The court finds in this instant matter, an obligation was created
between the State of Louisiana and the Albritton’s ancestor in title,
John Laidlaw, in 1858 when the State sold him a tract of land, but
could not transfer title. It is uncontested that the mineral rights to said
property would have transferred with the surface had the State held
title to the property involved in the original sale, so there is no
evidence of a reservation made by the State in said sale. Act 104 of
1888 ratified this sale and acted as an acknowledgment of the
obligation that existed between the State and John Laidlaw. The act
allowed the Albrittons to be issued a lieu warrant in place of the tract
of land erroneously sold by the State. Once the lieu warrant was
applied for, an obligation was created for the State to issue property
“of the same class as that originally entered under” in its place.

The State obligated itself to transfer a tract of land with
minerals in lieu of returning money it had taken in a sale of land it did
not own. The court agrees with the decision in Douglas [v. State, 23
So.2d 279 (La. 1945)] that property rights in a particularized piece of
property vested only upon presentment of the lieu warrant; however
an obligation or a contractual right to transfer a not-yet-identified tract
of property with minerals existed in 1919 on the date the Albrittons
were issued a lieu warrant. Because this obligation existed before the
1921 mineral sale prohibition, the prohibition could not impair this
existing obligation.

Louisiana is a civilian state. La.[Civ.Code] Art. 3.
Accordingly, this court is not bound by the decision of the Louisiana
2nd circuit Court of Appeal in [Justiss Oil Co., Inc. v. Louisiana State
Mineral Bd., 45,212 (La.App. 2 Cir. 4/14/10), 34 So.3d 507, writ
denied, 10-1066 (La. 9/17/10), 45 So.3d 1044]. While this court has
thoroughly reviewed and considered the 2nd Circuit’s decision in
Justiss, it ultimately finds that the Louisiana Supreme Court decision
in [State ex rel. Hyams’ Heirs v. Grace, 197 La. 428, 1 So.2d 683
(La.1941)] presents the proper interpretation of this matter.

For the aforementioned reasons given, the State’s motion for
summary judgment is hereby denied and the Albritton’s cross motion
for summary judgment is hereby granted, finding the Albrittons to be
owners of the minerals underlying the subject property.

The State appealed, contending the trial court erred in granting the

Albrittons’ cross motion for summary judgment.

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ANALYSIS

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. Louisiana

Safety Ass’n of Timbermen-Self Insurers Fund v. Louisiana Ins. Guar. Ass’n, 09-23

(La. 6/26/09), 17 So.3d 350. A court must grant a motion for summary judgment

“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.P. art. 966(B); Costello v. Hardy, 03-1146, p. 8 (La. 1/21/04), 864 So.2d 129,

137.

The Albrittons have maintained, and the trial court ultimately agreed, that

the issuance of a land warrant creates a constitutionally protected contractual right

to some land with minerals that cannot be impaired by either statute or subsequent

constitutional amendment by the State. We find the law, equity and the

jurisprudence support this argument. Thus, the trial court did not err in granting

summary judgment in favor of the Albrittons.

We find particularly instructive the Albrittons’ reference to the United States

Supreme Court case of McGee v. Mathis, 71 U.S. 143 (1866). In McGee, the

Arkansas legislature passed an act in 1851 which provided if a private person

would drain and levee certain swamp lands, he could take as compensation either

the land he improved, or a “scrip,” which could be presented at a future date for

similar quantity land of the same class and character. The 1851 act further

provided that all lands acquired pursuant to the act would be exempt from taxation

for a term of ten years.

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In 1853, the plaintiff in McGee drained and leveed swamp lands. He

elected, in accordance with the 1851 act, to take a scrip for his compensation.

However, in 1855, before the plaintiff exchanged his scrip for land, the Arkansas

legislature passed an act repealing the ten-year tax exemption for lands acquired

pursuant to the 1851 act. In 1857, after the plaintiff selected his land, the State

demanded he pay taxes on the property. The plaintiff objected to this, and

litigation ensued.

The U.S. Supreme Court held the Arkansas legislature’s attempt to collect

taxes on lands selected pursuant to scrips that were issued prior to the 1855 act

which repealed the tax exemption constituted an impairment of existing contractual

rights. The supreme court struck down the 1855 act as a nullity, insofar as it

repealed the tax exemption for lands acquired by scrips prior to the 1855 act. The

court explained:

The contract of the State was to convey the land for the scrip, and to
refrain from taxation for the time specified. Every piece of scrip was a
contract between the State and the original holder and his assigns.
Now what was the effect of that contract when made? Did it not bind
the State to receive the scrip in payment for swamp land, exempted
for a limited time from taxation? The scrip, if not receivable for lands,
was worthless. To annul the quality of receivability was to annul the
contract. But the exemption of the lands for which it was receivable
from taxation was a principal element in its value; and repeal of the
exemption was the destruction of this element of value. This was
clearly an impairment of the contract. The State could no more
change the terms of the contract by changing the stipulated character
of the land to be conveyed in satisfaction of the scrip as to liability to
taxation, than it could abrogate the contract altogether by refusing to
receive the scrip at all in payment for land.

We are constrained to regard the repeal of the exemption act, so
far as it concerns lands paid for, either before or after the repeal, by
scrip issued and paid out before repeal, as impairing the contract of
the State with the holders of the scrip.

Id. at 156-57 (emphasis added).

In accordance with McGee, once Warrant No. 188 was issued, the State

could not change the terms of the contract by changing the stipulated character of

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the land, i.e., the removal of the right to the underlying minerals, any more than it

could revoke its contract to issue a patent in compensation for the previously

issued erroneous title.

The Louisiana Supreme Court in State ex rel. Hyams’ Heirs v. Grace, 197

La. 428, 1 So.2d 683 (La.1941) (hereafter Hyams II), was presented with the same

scenario as in this matter. In 1863, Henry Hyams purchased land from the State

which it did not have title to, having been previously sold by the United States

government. By the time Act No. 104 was passed in 1888 to indemnify the holders

of patents for land which the State did not own, Mr. Hyams had died and his

children were all minors. Pursuant to Act 104, the executor of Hyams’ estate had

the erroneous patent canceled in 1888, and filed an application for a lieu warrant.

The application was lost for some time, and no action was taken by the State on the

warrant application. When Hyams’ heirs reached the age of majority, the warrant

application was found, and Warrant No. 168 was issued to them on December 28,

1917.

In order to satisfy the entirety of the 400 acre warrant, the Hyams’ heirs

made three separate patent applications for 40 acres of land each. These

applications, for 120 acres of land total, occurred on December 28, 1917, April 22,

1918, and June 3, 1919. These applications were rejected by the State, leading the

Hyams’ heirs to file a petition of mandamus to compel the issuance of a patent.

The ensuing litigation culminated in the Louisiana Supreme Court opinion of State

ex rel. Hyams' Heirs v. Grace, 173 La. 215, 136 So. 569 (La.1931) (hereafter

Hyams I).1

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After the 1917 patent application was rejected and the Hyams’ heirs filed the petition of mandamus to compel the
issuance of a patent, the trial court ruled in favor of the State. That judgment was reversed on appeal and mandamus
relief granted. The Louisiana Supreme Court found the executor’s compliance with the requirements of Act 104, in
conjunction with the State misplacing the application for the lieu warrant, created an equitable contract right as of
the date of the original lieu warrant application in 1888. In reaching this holding, the supreme court in Hyams I
noted, “When the citizen has done everything which the law says he shall do, has paid into the state treasury all that
he is required to pay, . . . the state could neither in good conscience nor under the Constitution declare such property
a part of the public domain and deprive the entryman of his possession and title.” Id. at 570 quoting State ex rel.
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On March 23, 1938, the Hyams’ heirs made a written application for a patent

for the remaining 280 acres left to satisfy Warrant No. 168. The State Land Office

refused the application. The Hyams’ heirs filed a petition for mandamus to compel

the issuance of a patent and an injunction to prevent the State from leasing the

mineral rights following and pertaining to the State’s denial of the lieu warrant

presented for the remaining unfulfilled land from the original 400 acres bought in

1863. The State contended the 1921 Constitution prohibited the sale of minerals

by the State. In Hyams II, 1 So.2d 683, the Louisiana Supreme Court ultimately

concluded the 1921 Constitution’s prohibition against the sale of minerals did not

apply to this transfer. Id.

As noted earlier, the facts in Hyams II are, in all relevant aspects, identical to

those presented herein. Hyams II involved whether the State could invoke Section

2, Article 4 of the 1921 Constitution to prohibit the conveyance of minerals in a

patent applied for and issued after 1921 to satisfy a lieu warrant applied for and

issued under Act 104 prior to 1921. The court in Hyams II, 1 So.2d at 686, found

the heirs were entitled to the minerals along with the land, explaining as follows:

A constitutional provision should be construed as having a
prospective effect only unless it exhibits the intention of its framers to
be given a retrospective effect. Succession of Parham et ux., 51
La.Ann. 980, 25 So. 947, 26 So. 700. There is no language used
therein to indicate that this constitutional provision is to apply to
transfers of property under lieu warrants previously issued under Act
No. 104 of 1888. In our opinion it deals with future sales of land
made by the State and there is nothing contained therein to suggest
that it was intended to destroy or impair a contract previously entered
into by the State. The framers of the Constitution cannot be credited
with such an intention.

The opinion in Hyams II clearly indicates the supreme court viewed lieu

warrants as a contract between the State and the holder of the warrant, creating a

contractual right in the holder of the warrant for land of like class and character.

The Hyams II court stated as follows:

Armistead et al. v. Grace, 129 La. 694, 56 So. 641, 643 (1911). Hyams I is instructive because it recognized that a
lieu warrant issued pursuant to Act 104 is an enforceable contract right which cannot be impaired.
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Article 14 of the Code of Practice provides that where a contract is to
be performed at a future period the obligation growing out of the
contract arises at the moment it is made but the right of action
growing out of it arises only when the stipulated term has arrived.

Id. at 685-86 (emphasis added).

The trial court based its ruling in this case on the supreme court’s holding in

Hyams II that a lieu warrant issued prior to 1921 is a contractual obligation owed

by the State to convey land with minerals, and the passage of the 1921 Constitution

cannot alter or impair that obligation. To allow the prohibition to impair this

contractual right would be a violation of the Contracts Clause of the United States

Constitution (article I, § 10, cl. 1) which provides “[n]o State shall . . . pass any

Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts.

. ,” and Louisiana Constitution article I, § 23, which declares “[n]o bill of attainder,

ex post facto law, or law impairing the obligation of contracts shall be enacted.”

Not surprisingly, the State attempts to distinguish or limit the effect of

Hyams II to the facts presented herein. First, the State argues, “[a]lthough Hyams

II was instituted as a suit to compel the issuance of patents for 1938 presentment of

a part of a warrant, the case became converted to an examination of prescription

and the classification of the disputed rights as real or personal.” The Albrittons

addressed this contention, noting while the Hyams II court discussed the issue of

prescription, the assertion that the case was “converted” to a case about

prescription is erroneous. As set forth above, the Hyams II court specifically held

the Hyams heirs’ patent should issue pursuant to the pre-1921 lieu warrant without

any reservation of minerals due to the fact the issuance of that warrant created a

constitutionally protected right for land that must include minerals.

The State also attempts to muddy the waters concerning Hyams II, arguing

“at least part of the Hyams II warrant had been presented to the State prior to the

passage of the 1921 Constitution,” and it was “unclear how or whether this

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distinction factors into any decision by the Court.” However, the court in Hyams II

clearly set forth the “suit was instituted because the Register of Land Office

rejected the application made to locate a portion of the warrant of March 23,

1938.” Id. at 685.

Lastly, the State has contended Hyams II “is not about a contract right per

se. It is about a property right that might have arisen from a contract.” We find

this argument irrelevant to the matter before us. We agree with the Albrittons that

“the fact that the Court in Hyams II found a land warrant to be a contract entered

into by the State obligating it to convey a real/property right in a yet to be

identified tract of land (including minerals), makes no difference to this case.”

Hyams II clearly manifested its belief that “there is nothing contained [in the 1921

constitution’s prohibition against mineral sales by the State] to suggest that it was

intended to destroy or impair a contract previously entered into by the State.” Id.

at 686.

We have found nothing in the arguments presented by the State to persuade

us that the trial court erred in finding the holding in Hyams II was controlling in

the instant case. The holding in Hyams II has never been changed or limited, and

is in keeping with the U.S. Supreme Court’s opinion in McGee.

The State also relies on Justiss Oil Co. v. Louisiana State Mineral Bd.,

45,212 (La.App. 2 Cir. 4/14/10), 34 So.3d 507, writ denied, 10-1066 (La. 9/17/10),

45 So.3d 1044, in support of its position. In that case, the State erroneously sold

forty acres of land to Frank Pierson. In 1919, Pierson had the erroneous 1896

certificate cancelled and obtained Land Warrant No. 187. In 1935, Joseph A.

Clements (presumably an heir to Frank Pierson, although the opinion does not

specify that fact) presented the warrant to the State Land Office. The State then

issued Patent No. 101068.

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Justiss Oil Company acquired the subject land through a sheriff’s sale on

September 9, 1981. In 1999, Justiss Oil sold the land to the Louisiana Land

Company of Acadiana, but reserved an undivided one-half interest in the oil, gas,

and minerals “in, on, or under” the property. Later that same year, Louisiana Land

sold the property to the State. In June 2006, the Louisiana State Mineral Board

granted a mineral lease to Cypress Energy Corporation, which included the land on

which Justiss Oil retained the mineral interest.

The parties stipulated to the claim of title established by Justiss Oil, but the

State argued the mineral rights were not conveyed in 1935, but were reserved in

favor of the State relying on the prohibition against the sale of mineral rights by the

State found in the 1921 Louisiana Constitution. Justiss Oil maintained because the

patent was issued pursuant to a pre-1921 lieu warrant, the constitutional

prohibition did not apply. The trial court agree with Justiss Oil’s argument and

granted summary judgment in its favor. The State appealed.

The Second Circuit Court of Appeal reversed the summary judgment in

favor of Justiss Oil and granted summary judgment in favor of the State. The court

in Justiss accepted the State’s argument that “property rights vest only when the

lieu warrant is presented to obtain a patent for a specifically identified parcel of

land.” Id. at 510.

The Albrittons note the Justiss court incorrectly set forth the facts in Hyams

II, which led to its failure to ultimately follow the clear holding of Hyams II. In

Justiss, 34 So.3d at 512, the second circuit wrote:

Even in Hyams II, the heirs had applied for patents to locate the lieu
warrant on specifically identified land three times before adoption of
the Constitution of 1921. It was the State’s failure to act on the patent
applications that delayed issuance until after 1921. Because the heirs
had done all the law required them to do to obtain the patents, the
supreme court was correct in ordering them issued without reservation
of mineral rights by the State. . . Moreover, the specific facts of
Hyams II, supra, and the supreme court's subsequent opinions on
similar matters weigh in the defendants’ favor.

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As set forth previously in this opinion, the three pre-1921 patent applications had

nothing to do with the case before the court in Hyams II. The supreme court in

Hyams II clearly stated that “suit was instituted because the Register of Land

Office rejected the application made to locate a portion of the warrant of March 23,

1938.” Hyams II, 1 So.2d at 685 (emphasis added).

The trial court, in its written reasons for judgment, also specifically noted

the Justiss court’s erroneous interpretation of the facts in Hyams II:

Hyams II was filed as a petition of mandamus to compel the
issuance of a patent and an injunction to prevent the state from leasing
the mineral rights following and pertaining to the March 23, 1938
denial of the lieu warrant presented for 280 acres of land (or the
remaining unfulfilled land from the 400 acres bought in 1863). The
State made the argument that the 1921 Constitution prohibited the sale
of minerals by the state. Id. at 437. The Supreme Court found that
the 1921 Constitution’s prohibitionto the sale ofminerals did not apply
t this transfer. Id.
Specifically not at issue in Hyams II are the three warrant
presentments made prior to 1921 that resulted in the granting of
patents for three 40 acre lots not connected to the 280 acres in
question. (Emphasis added.)

Our review leads us to agree with the Albrittons and the trial court, that had

the Justiss court understood Hyams II only involved the 1938 patent application, it

could not have disregarded its clear holding. The trial court correctly found it was

bound to follow the supreme court’s holding in Hyams II, which it noted

“present[ed] the proper interpretation of this matter.”

The ultimate holding in Justiss, that “[i]f If the holder of a lieu warrant

waited to apply for a patent locating the warrant on specifically identified land

until after adoption of the 1921 Constitution, then he obtained a patent subject to

the reservation of mineral rights in favor of the State as provided in Art. IV, § 2,”

is simply incorrect and in direct contravention of the supreme court’s holding in

Hyams II. In Hyams II, the holder of a pre-1921 lieu warrant did not apply for a

patent application until 1938, well after the adoption of the 1921 Constitution.

Even though the holder waited until after 1921 to make the patent application, the

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court in Hyams II, found the 1921 Constitution’s prohibition could not be applied

to prohibit the conveyance of minerals in the resulting patent. This was so because

the lieu warrant created a constitutionally protected contract right in the holder.

See McGee v. Mathis, 71 U.S. 143. The same facts are present in the instant case:

the holders of a pre-1921 warrant applied for a patent in 1943. As in Hyams II, the

1921 Constitution’s prohibition against the sale of mineral rights by the State

cannot be applied to deny the warrant holders’ constitutionally protected right to

the minerals forming part of the subject property. This holding should have

applied in Justiss, and we find the trial court correctly found the holding in Hyams

II applicable in this case.

DECREE

For the foregoing reasons, the judgment of the trial court granting the

Albrittons’ motion for summary judgment is affirmed. All costs of this appeal are

assessed against appellees, the State Mineral and Energy Board of the State of

Louisiana.

AFFIRMED.

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