Shale in Sale-Adaptive Resolution of Mineral Rights Disputes Through Warranty Law and Veil-Piercing Remedies

Author:Martha Thibaut
Position:J.D./D.C.L. 2014, Paul M. Hebert Law Center, Louisiana State University
Pages:975-1005
 
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Shale in Sale—Adaptive Resolution of Mineral Rights
Disputes Through Warranty Law and Veil-Piercing
Remedies
TABLE OF CONTENTS
Introduction ............................................................................. 976
I. A Common Trend: The Second Circuit Trilogy .................... 978
A. Tealwood Properties, L.L.C. v. Succession of Graves ..... 979
B. Coleman v. Burgundy Oaks, L.L.C. .................................. 981
C. Spillman v. Gasco ............................................................. 982
D. Significance of the Second Circuit Split .......................... 983
II. Rethinking Sufficiency of Declarations in Warranty
Against Eviction ...................................................................... 985
A. Scope of the Warranty Against Eviction: The
“Thing” Covered ............................................................... 985
B. Determining the Sufficiency of Declarations ................... 988
1. Declarations in Doctrine and Jurisprudence:
Traditional Notions ..................................................... 988
2. Declarations in “Practice” .......................................... 991
3. Going Forward: A “Reasonableness” Test for
Determining Sufficiency of Declarations .................. 993
C. Determining the Rights of the Evicted Buyer .................. 996
1. Traditional Rights ....................................................... 996
2. Creative Resolution .................................................... 998
III. Veil-Piercing ........................................................................... 998
A. “Piercing the Corporate Veil” to Prevent
Circumvention of the Law ................................................ 999
1. Traditional Veil-Piercing Doctrine............................. 999
2. Circumvention Veil-Piercing Theory ....................... 1001
B. Circumvention Veil-Piercing Applied to
Warranty Law ................................................................. 1003
Conclusion ............................................................................. 1004
976 LOUISIANA LAW REVIEW [Vol. 74
INTRODUCTION
In March 2008, Chesapeake Energy Corporation (Chesapeake)
pivotally announced its discovery of a profitable method for
extracting natural gas from the mineral-rich Haynesville Shale in
northern Louisiana.1 Although the Haynesville Shale has long been
known for its extraordinarily rich natural gas reserves, until 2008,
scientists were unable to access the wealth it contained.2 Once
Chesapeake announced its findings, a “gas rush” ensued in which
dozens of companies dispatched agents, known as “landmen,” to
obtain mineral leases on the land.3 This gas rush sparked
considerable unrest in the Haynesville area—both courtrooms and
records rooms in northern Louisiana filled to the brim as landmen
searched for the true owners of the valuable mineral rights.4
A flood of litigation followed Chesapeake’s discovery as
individuals and corporations alike vied for a piece of the
Haynesville pie.5 This litigation highlights an alarming practice
involving real estate transfers. Likely anticipating the windfall
resulting from the Chesapeake discovery, many sellers of property
have quietly and creatively attempted to exclude mineral rights from
the sales of their properties. Imagine the following, typical scenario:
Buyer purchases from Seller real estate in northern
Louisiana under a typical sale conferring full warranty of
title. Suddenly, as a result of the Haynesville Shale rush,
landmen are knocking on doors all around the parish,
promising overnight fortune. When no one knocks on
Buyer’s door, Buyer learns that according to the warranty
deed, the sale of the land was made “subject to servitudes
of record” and that, at the time of the sale, a third-party
corporation owned the mineral rights pursuant to a mineral
servitude. Seller now argues that this language served as
notice of the third-party corporation’s mineral servitude,
which was recorded in the public records. As a final stab,
Copyright 2014, by MARTHA THIBAUT.
1. Ben Casselman, U.S. Gas Fields Go from Bust to Boom, WALL ST. J.
(Apr. 30, 2009, 11:59 PM), http://online.wsj.com/article/SB124104549891270
585.html [http://perma.cc/6DW3-M3C8] (archived Mar. 3, 2014).
2. Id.
3. Id.
4. Adam Nossiter, Gas Rush Is On, and Louisianians Cash In, N.Y. TIMES
(Jul. 29, 2008), http://www.nytimes.com/2008/07/29/us/29boom.html?hp=&page
wanted=all&_r=0 [http://perma.cc/4BNM-K2QF] (archived Mar. 3, 2014).
5. E.g., Cascio v. Twin Cities Dev., LLC, 48 So. 3d 341 (La. Ct. App. 2010);
Alyce Gaines Johnson Special Trust v. El Paso E & P Co., L.P., 773 F. Supp. 2d
640 (W.D. La. 2011); Adams v. JPD Energy, Inc., 46 So. 3d 751 (La. Ct. App.
2010); Marin v. Exxon Mobil Corp., 48 So. 3d 234 (La. 2010).

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