The Energy Law Blog : Energy Lawyer & Attorney : Liskow & Lewis Law Firm : Gulf Coast, Offshore

By Marie Carlisle

On May 28, 2009, the Fifth Circuit decided In the Matter of: Lease Oil Antitrust Litigation, case no. 08-40230, reversing the District Court’s denial of the State of Texas’ motion to intervene in a matter concerning unclaimed settlement money from the oil antitrust action. The Fifth Circuit found that Texas met the requirements to intervene as it presented a timely motion, demonstrated an interest in the litigation which was direct and substantial and would be impaired without intervention, and that Texas’ interest was not represented by any of the existing parties.   The appeal stemmed from a 1999 settlement in a class action where the Plaintiffs claimed oil companies were not paying the fair market value of oil at the well. After distribution of settlement checks to members of the class who could be located, $4,638,283 in funds remained and were owed to class members who could not be located, but whose last known addresses were in the State of Texas. The District Court decided to distribute the funds to a third party, under the doctrine of cy pres. The State of Texas was not a party to these hearings. On December 12, 2007, the district court approved the cy pres distribution but, anticipating an intervention and appeal by the State, set the funds aside rather than immediately distributing them. On January 11, 2008, Texas filed a motion to intervene and a motion to reconsider with the district court. Both motions were denied and Texas then appealed the denials to the Fifth Circuit, arguing that it should have been granted leave to intervene in the district court. The Fifth Circuit reversed the district court, finding that Texas met the requirements for intervention as of right—it filed a timely motion, presented a direct and substantial interest in the litigation which would be impaired absent intervention, and had demonstrated that its interests were not represented by the existing parties.
 

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By Jonathan Hunter:

In a highly anticipated decision, the Tenth Circuit held this week that the district court had subject matter jurisdiction over a qui tam action filed by an MMS auditor concerning royalty payments on crude oil produced from offshore federal leases. The district court had dismissed the case on the grounds that the auditor, who received relevant information from an employee of the State of Louisiana, was not the "original source" of the information on which the claim was based. The appellate court reversed, holding that "the transfer of information between a federal employee and a state government auditor who is under a duty of confidentiality is not a public disclosure and therefore does not deprive the courts of jurisdiction." The court also ruled that "Mr. Maxwell was not prevented from serving as a relator on the basis that he is a federal auditor who discovered the information underlying his suit in his official governmental role." A link to the decision is attached.

http://www.ca10.uscourts.gov/opinions/07/07-1193.pdf

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In Bowden v. Phillips Petroleum Co., No. 03-0824 (Feb. 15, 2008), the Texas Supreme Court again addressed the propriety of class actions for gas royalty claims.  The class affirmed the denial of two subclasses, but reversed the denial of a third subclass of royalty claimaints.  The Court followed its prior holding in Yzaguirre in concluding that an "implied duty to market claim" is not susceptible to class treatment in a class containing both "market-value" and "proceeds" type leases.  The Court also addressed the nature of the implied duties in oil and gas leases, whether the ambiguity of the underlying agreement precludes class treatment, and the extent to which class representatives may abandon individualized claims in order to preserve class treatment for common claims.

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In CLK Company, L.L.C. v. CXY Energy, Inc., No. 07-834, 2007 WL 4409686 (La. App. 3d Cir. 12/19/07), the court addressed the payment of royalties and penalties under Mineral Code article 212.23(c) and concluded that plaintiff’s letters were insufficient to trigger the provisions of that article.  In CLK Company, the parties entered into a confidentiality agreement whereby the plaintiff agreed to provide services to the defendant.  In exchange, the defendant agreed to transfer an overriding royalty interest in the subject prospect to the plaintiff in the event defendant acquired an interest in the prospect.  When defendant refused to assign the overriding royalty interest to the plaintiff, plaintiff brought action, inter alia, for penalties under Article 212.23(c).  That article provides that a court may award as damages double the amount of royalties due together with attorney’s fees if the recipient of a demand letter fails to pay or otherwise fails to state a reasonable ground for non-payment in response to such notice.

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      On November 21, 2007, the Louisiana Fourth Circuit Court of Appeal affirmed the trial court’s ruling in favor of Chevron U.S.A., Inc. (“Chevron”), the Plaquemines Parish Government (“PPG”), and others in a dispute with the State of Louisiana over the validity of a 1938 mineral lease granted by the Buras Levee District (“BLD”). The State of Louisiana had previously created the BLD and transferred to it all lands belonging to the State within its geographic borders, including the tract involved in the instant matter (Tract 1). In 1975, the BLD merged and consolidated with the PPG. The State of Louisiana asserted, among other arguments, that the merger and consolidation of the BLD with the PPG constituted an impermissible alienation of state minerals and that the State was entitled to the mineral revenues attributable to Tract 1 as an unleased owner. Faced with competing claims for royalty payments from the PPG and State of Louisiana, Chevron, as sublessee of the 1938 BLD lease, filed a petition for concursus and deposited royalty payments into the court registry.

            Ultimately, the Fourth Circuit affirmed the trial court’s finding that the State’s claims were barred by res judicata. Previously, in 1990, Chevron had filed a concursus to seek a resolution of competing claims made by the PPG and the State of Louisiana as to royalties applicable to a separate tract covered by the 1938 BLD Lease, Tract 87. In that prior litigation, the Louisiana Fourth Circuit affirmed a judgment in favor of PPG, finding that the 1938 BLD Lease was valid. 

            Here, the Fourth Circuit found that the instant case was barred by the doctrine of res judicata, since the present action concerning Tract 1 arose out of the same transaction or occurrence as the litigation concerning Tract 87. The court observed that the 1938 BLD Lease’s validity had been recognized by courts since 1943. Further, the real “cause of action” for res judicata purposes in both the Tract 87 litigation and the instant case was the immovable known as the 1938 BLD Lease, not any single tract of land contained therein. The court concluded that “[t]his is exactly the type of case to which res judicata applies” and “[t]o find otherwise would permit the State to file a series of separate actions challenging the ownership of mineral rights in each and every tract contained in the 1938 BLD Lease.”  Chevron U.S.A., Inc. v. State of Louisiana, et al., No. 2007-CA-0673, pp. 7-8 (La. App. 4th Cir. 11/21/07).    

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By Joe Giarrusso: 

In Louisiana, a lawsuit is generally deemed abandoned when the parties fail to take any step in its prosecution for three years.  This rule is operative without any formal order.  La. Code Civ. P. art 561.  However, Act 361 of 2007 extended the period for abandonment to five years where (1) the action was initiated prior to August 26, 2005, and was not previously declared abandoned under the general three year period, and (2) the party proves that the failure to take a step in the prosecution or defense of the suit was caused by or was a direct result of Hurricanes Katrina or Rita.  The revision became effective July 9, 2007.   Click here to read the Act.

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The Associated Press reported today that a federal jury found Kerr McGee liable for additional royalties on crude oil produced from federal properties and sold through Texon.  The case is noteworthy in that it was brought as a False Claims Act case by Bobby Maxwell, an auditor with the Mineral Management Service, who alleged that his superiors at the MMS refused to pursue his recommendation to demand additional royalties from Kerr McGee.  The underlying allegations were that Kerr McGee sold crude oil to Texon, and received marketing services and other non-cash considerations, on which royalty was not paid.  Kerr McGee had denied the allegations and claimed that no additional royalties were owed.

The MMS issued a press release maintaining its original position that Kerr McGee had properly paid its royalties on these transactions, and that federal auditors should not be able to bring False Claim Act cases because of the conflict of interest that arises in seeking personal recovery upon information that they are paid by the taxpayers to collect.  Kerr McGee has indicated that intends to appeal the verdict.

This is  one of several False Claim Act cases filed by former or current employees of the MMS, claiming that royalties were underpaid to the federal government on oil or gas production.

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