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

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).