The Louisiana Third Circuit Court of Appeal recently issued an opinion involving issues of prescription and breach of contract claims in the context of Act 312 and “legacy lawsuits” that oil and gas companies must remain cognizant of going forward. In State of Louisiana, et al. v. Louisiana Land & Exploration Co., et al., the Third Circuit affirmed the Vermilion Parish School Board’s authority to sue on behalf of the state, rejected a prescription defense on the basis of prescription immunity under the Louisiana Constitution, and concluded that a finding of “environmental damage” as defined under Act 312 is sufficient to trigger a breach of contract claim.

Vermilion Parish School Board (“VPSB”) filed a petition for alleged damage to Sixteenth Section School Lands on its own behalf and on behalf of the state. VPSB urged various causes of action such as negligence, strict liability, and breach of contract in seeking damages and remediation of the property. This case boasts a lengthy and varied procedural history, but the opinion at issue came after a jury found Unocal responsible for “environmental damage” as defined under Act 312 and awarded $3.5 million for a regulatory cleanup to the requisite state standards. In addition, the jury found Unocal strictly liable to the plaintiffs (but not liable for negligence or breach of contract), awarding $1.5 million in private damages.

Unocal appealed, asserting that VPSB did not have authority to sue on behalf of the state and that VPSB’s claims were prescribed. VPSB also appealed, arguing primarily that the verdict was inconsistent insofar as the jury found environmental damage, but no breach of contract. The Third Circuit ultimately affirmed the decision that VPSB’s claims are not prescribed, and reversed and remanded for a new trial on the basis that the jury verdict was inconsistent.

The Court first addressed Unocal’s contention that VPSB lacked authority to sue on behalf of the state with a short review of its own and U.S. Fifth Circuit jurisprudence. Reasoning that VPSB was acting in furtherance of its duty to function as the state in the state’s capacity as trustee of Sixteenth Section lands, the Court determined that VPSB has the right to bring any action to protect said lands. Thus, the Court concluded that VPSB was allowed to bring the claims at issue and affirmed the trial court’s denial of Unocal’s exception of no right of action.

The opinion then turned to Unocal’s second assignment of error: that VPSB’s claims were prescribed because its strict liability claim—the claim on which VPSB prevailed at trial—was filed more than one year after it knew of the claim (even more than one year after VPSB retained counsel to file suit). The Court began with a discourse on the jurisprudential history of prescription relative to the state and state agencies. Ultimately, the Court found that Sixteenth Section lands are private, corporeal, immovable things, that the relationship between said lands, the state, and the school boards is that of trust for the benefit of public use, and that said lands fall within the public trust doctrine. As a result of these findings, the Court concluded that VPSB’s claim was immune from prescription under Article 12, Section 13 of the Louisiana Constitution.

Lastly, the Court analyzed VPSB’s contention that the judgment was based on an inconsistent jury verdict. Notably, as expressly authorized by Act 312, Unocal had entered into a pre-trial limited admission of “environmental damage.” Act 312 provides that any limited admission is admissible in evidence at trial and Unocal’s limited admission was presented to the jury in this case.  Ultimately, the Third Circuit cited to Unocal’s limited admission, as well as both parties’ expert testimony that there were regulatory exceedances on the property, to conclude that no reasonable jury could have found that Unocal did not breach its leases.

The case involved two leases: a 1935 mineral lease and a 1994 surface lease. The 1935 lease, as the Court recognized, did not contain any language with respect to remediation and/or restoration obligations. However, the Court cited an earlier decision from the Louisiana Supreme Court in this very case, 110 So. 3d 1038 (La. 2013), to find that Unocal had an implied obligation under the Louisiana Civil Code to restore the land to its previous condition minus “normal wear and tear.” The Court held that the finding of “environmental damage” meant that Unocal failed to return the property with only “ordinary wear and tear,” which “can only be reasonably found to be a breach of the 1935 lease.”

As to the 1994 lease, the Court found that Unocal had an express duty to restore the property “to the same or similar condition existing at commencement of the lease as nearly as practicable” as well as a duty to comply with all applicable governmental regulations. The Court reasoned that Unocal’s failure to abide by state regulations (evidenced by Unocal’s expert’s testimony that saltwater escaped from disposal wells) necessarily dictates that Unocal breached the 1994 lease.

Based on the findings above, the Court concluded that the jury’s failure to find Unocal in breach of both the 1935 and 1994 leases was inconsistent with its finding that Unocal was responsible for “environmental damage” to the property and its award to restore the property to state regulatory standards. Further, finding that the trial court committed legal error in entering judgment based on the inconsistent verdict, the Court remanded the case for a new trial as to these issues.

The decision therefore has significant implications not only for cases involving Sixteenth Section lands, but also on the interplay between limited admissions, “environmental damage,” and lease claims in the context of legacy lawsuits and Act 312.

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