In Gloria’s Ranch, L.L.C. v. Tauren Exploration, Inc., the Louisiana Second Circuit upheld a trial court’s ruling that Wells Fargo, a mortgage lender with a security interest in a mineral lease, was solidarily liable with its borrowers (the mineral lessees) for a breach of the mineral lessees’ contractual and statutory obligations to produce in paying quantities, pay royalties, and respond to the mineral lessor’s demands regarding those obligations.  A detailed summary of that decision is available here.

On August 7, in a 3-2 decision, a panel of five Second Circuit judges denied the defendants’ application for rehearing. A vigorous dissent by Judge Bleich warns that, if maintained, the original opinion could have both “[d]evastating economic repercussions” for the lending industry, and “[s]erious and harmful impact on the oil and gas industry.”

The dissent states that the decision—i.e., holding a mortgagee solidarily liable with its mortgagor for the mortgagor’s actions—is legal error with far-reaching public policy consequences:

Solidary liability between a lender and its borrower/owner for its actions will have a calamitous effect in Louisiana on banking and the relationship between creditors and debtors. . . . [T]he opinion will have a most chilling effect on the financing of oil and gas operations, which in turn will have an adverse economic effect on government and business in our state.

Chief Judge Henry Brown, Jr., also dissented from the denial of rehearing and “strongly agree[d] with the written reasons assigned by J. Bleich.”

The defendants will have until September 7, 2017 to seek a writ from the Louisiana Supreme Court.

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