November 2017 Legal Update by Ryan McAlister / Gordon Arata

by: Martha Mills at 11/5/2017 2:19:33 PM | Viewed 62 times.

LOUISIANA LEGAL

UPDATE

 

Ryan McAlister

Gordon Arata

    

Glassell Producing Company, Inc. v. Junius A. Naquin

July 5, 2017

On July 5th, the Louisiana First Circuit Court of Appeal reversed the 17th Judicial District Court of Lafourche Parish, Louisiana to hold that the contested deed conveyed the owner’s royalty interest only in a prior mineral lease and not the entire royalty interest in the land covered by the deed.

The suit arose out of a concursus action involving a dispute over royalty payments due under a mineral lease.  Three siblings, Junius Naquin, Carol Naquin Boudreaux and Dolores Naquin Durocher, had each inherited an undivided 1/3 interest in their father’s 1/16 interest in and to a 31-acre tract of land in Lafourche, Louisiana.  When they inherited the property, it was subject to a 1947 oil, gas and mineral lease with a 1/8 royalty.  Thus, each sibling had a 1/3 of 1/16 of 1/8 (or 1/3 of 0.0078125) royalty interest under the 1947 lease.

In August and October of 1993, while the 1947 lease was still in effect, Junius and Dolores conveyed to royalty interests to Carol.  Each deed contains the following language:

ALL OF SELLER'S right, title and interest consisting of an undivided one third in a .00781255 mineral royalty interest in and to the following described property

A certain tract or parcel of land containing 26.34 acres, being in the W/2 of the E/2 of Section 57, T 15 S, R 15 E; being bounded as follows: North by land of Dewey Adams now or formerly, East by Heirs of Joseph Adams now or formerly, South by Lyric Realty and Parking Company now or formerly, West by Roger heirs now or formerly

In 1998, after production had ceased, the lessees under the 1947 lease filed a release and surrender of the lease in the parish conveyance records.  Later that year, Carol entered into a new mineral lease with Alfred C. Glassell, Jr. for a portion of the property; she retained a 1/6 royalty interest.  But Glassell did not obtain a lease from the Dolores or Junius.  In 1999, a well was successfully drilled on the 1998 Lease.

In 2015, the lease holder, Legacy Trust Company N.A., and the well operator,  Glassell  Producing  Company,  Inc.,   instituted a concursus proceeding to determine proper payment of the royalty under the 1998 Lease.  The question presented was whether the 1993 deeds from Junius and Dolores to Carol conveyed only their royalty interest in the 1947 Lease or instead conveyed all of their royalty interest in the property.

Carol answered the petition and argued that the reference to a .00781255 mineral royalty interest in the deed was “merely a typographical error” and that her siblings intended to transfer all of their royalty interests in the property. 

The heirs of Dolores argued that the language of her deed was clear in that the transfer concerned only the .00781225 interest and that it was never the intent to transfer any future royalty interests.  Junius failed to timely answer the petition and was thereafter precluded from filing a claim in the matter.

Carol later filed a motion for summary judgment that her siblings transferred all of their royalty interest thereby creating a new mineral royalty interest under Louisiana Revised Statute 31:80.

Noting that neither deed referenced the 1947 Lease, the trial court granted Carol’s motion.  The court explained:

Prior to the acts of the cash sale, they [Junuis and Dolores] were receiving their one-third (1/3) interests. After the sale, they ceased receiving their interests. The sales accomplished what they intended to do, which was to relieve themselves of the financial royalties, so that they could qualify for whatever governmental qualification they were trying to attain. None of that is in dispute…

I don’t think that there's any dispute that these acts of sale transferred their interests—the interest of Junius II or the interest of Dolores Naquin to Carol. They’re not—those transfers of the interests were not somehow revived just because the Beckenstein lease [the 1947 Lease] went out of existence. Those interest were already sold.  They’re not revived.  The fact that they moved on to a new provider or payor, Glassell, doesn’t bring them back into this mineral interests.

Dolores’ heirs appealed to the Louisiana First Circuit Court of Appeal.  They argued that the district court erred in holding that her deed transferred all of her royalty interest in the land.  The pivotal distinction the heirs articulated was that the deed described “a .00781255 mineral royalty” and did not contain the language “all royalties.”  Additionally, they stressed that Carol had no authority to lease Dolores’ interests to Glassell, as Dolores never conveyed anything in the property other than a mineral royalty interest.

The First Circuit established the foundation of their opinion through the interpretation of several revised statutes and previous court opinions.  First, the court explained that under Louisiana Revised Statute 31:82, a mineral royalty may be created either by a mineral servitude owner or landowner who owns minerals.  Further, the court cited the seminal Louisiana Supreme Court case of Vincent v. Bullock, 192 La. 1, 187 So. 35 (1939), for the proposition that the nature of the royalty is grounded “upon the contract in which it appears … If a party to a contract sells royalty under an existent lease, he is selling a part or the whole of his rent due from the lease upon which his royalty depends.”

The First Circuit identified the issue whether the royalty interest conveyed to Carol created a new, real right in the property or instead was an appendage to the 1947 Lease and thus would cease to burden the property upon termination of the 1947 Lease. 

The First Circuit held that Dolores’ deeds lacked any language evidencing the intent to transfer all of their royalty interest in the land.  Furthermore, the Court found that “ALL OF SELLER’S right title and interest” simply modified reference to the “undivided on third in a .00781255 royalty in a royalty interest.”  Accordingly, because the conveyance was strictly applicable to the 1947 Lease, the royalty interest at issue in the deed ceased to burden Dolores’ interest in the land when the 1947 Lease terminated.  Thus, the First Circuit reversed the district court for erring as a matter of law “in finding that the 1992 deed conveyed a general royalty interest.”

What should you take away from Glassell?

First, it’s important to be accurate and precise when drafting and interpreting agreements.  Often times, disputes will arise long after a contract is executed and the parties may “remember” their intent differently than what it actually was at the time of signing—or one or more of the original parties may no longer be accessible.  Thus, parties are often left with only the language of the document to ascertain the executing parties’ intent.  Where the intent of the parties is not clear, a seemingly insignificant word or provision may make all the difference.

Second, identify these issues lurking in land and mineral title early on in the exploration and development of mineral resources.  Failure to do so often results in costly litigation to determine ownership of claims for unpaid royalties.  If the language in a deed seems ambiguous, or if you are charged with drafting specific provisions related to transfers of mineral or royalty interest, call Gordon Arata.

Ryan is an associate in the firm’s Lafayette office where he focuses his practice on oil and gas matters and complex litigation.  After graduating from Lafayette High School, Ryan attended the United States Military Academy at West Point where he earned his Bachelor of Science.  He then served as an Infantry Officer in the United States Army for over six years, including a year deployment to Iraq. During law school, Ryan interned with the Louisiana Department of Natural Resources.  He graduated Cum Laude from the Paul M. Hebert Law Center at Louisiana State University in 2017, receiving his Juris Doctor, Graduate Diploma in Comparative Law, and the Energy Law and Policy Certificate. He is admitted to practice law in Louisiana.

 

 

      

 

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