Staying Out of Treble: A Comprehensive Civilian Approach to the Louisiana Mineral Code Provisions on Damages for Unpaid Royalties

• Author: Nathan Telep
• Position: J.D./D.C.L., 2015, Paul M. Hebert Law Center, Louisiana State University.
• Pages: 995-1024

Staying Out of Treble: A Comprehensive Civilian Approach to the Louisiana Mineral Code Provisions on Damages for Unpaid Royalties TABLE OF CONTENTS Introduction .................................................................................. 995 I. The Law of the Land: The Louisiana Mineral Code .................... 997 A. The Development of Mineral Law in Louisiana .................... 998 B. Mineral Leases and Remedies for Nonpayment of Royalties............................................................................... 1001 II. Civilian Interpretation of the Mineral Code Articles .................. 1004 A. Exegetical Method: Using Logical and Historical Interpretations to Show that the Mineral Code Does Not Provide for Treble Damages ................................................ 1005 1. Logical Interpretation .................................................... 1006 2. Historical Interpretation ................................................. 1011 B. Teleological Method ............................................................ 1013 C. Secondary Sources ............................................................... 1015 1. Jurisprudence ................................................................. 1015 a. The Second Circuit Skirts Treble ............................ 1016 b. The Third Circuit Runs into Treble ......................... 1017 c. Justice Knoll Tries to Bail the Appellate Courts Out of Treble ........................................................... 1018 d. Courts That Stayed Out of Treble ........................... 1018 2. Doctrine ......................................................................... 1019 III. A Proposal for the Mineral Code to Clearly Stay Out of Treble ..................................................................................... 1023 Conclusion .................................................................................. 1024 INTRODUCTION Louisiana’s economy has not been the same since September 1901, when oil was first discovered near Jennings, Louisiana. 1 Since this Copyright 2016, by NATHAN TELEP. 1. See Patrick H. Martin, Preface to STATE OF LOUISIANA MINERAL CODE AND FORMS, at iii (2009); Patrick S. Ottinger, From the Courts to the Code: The Origin and Development of the Law of Louisiana on Mineral Rights , 1 LSU J. ENERGY L. & RESOURCES 5, 9 (2012). 996 LOUISIANA LAW REVIEW [Vol. 76 discovery, the oil and gas industry has expanded immensely in the state, establishing itself as a vital part of Louisiana’s economy. 2 The oil and gas industry had a $73.8 billion impact on the Louisiana economy in 2011 and provided nearly 287,000 energy-sector jobs throughout the state. 3 Louisiana ranks second in the United States in the production of crude oil, second in the production of natural gas, and second in its capacity to refine petroleum. 4 Given the prevalence of mineral leases in the state, the interests of Louisiana mineral lessors and lessees contribute significantly to the sizeable economic impact of the oil and gas industry. 5 Because mineral leases can typically be very valuable, it is unsurprising that lease disputes often result in litigation between mineral lessors and lessees. 6 Several different articles in the Louisiana Mineral Code provide remedies for one of these types of disputes—a mineral lessee’s failure to pay royalties. 7 These articles provide that “[t]he court may award as damages double the amount of royalties due, interest on that sum from the date due, and a reasonable attorney’s fee.” 8 Over the years, Louisiana courts and scholars alike have interpreted this code provision differently, and the Louisiana Supreme Court has yet to provide any guidance on the interpretation. 9 2. See generally LOREN C. SCOTT, THE ENERGY SECTOR: STILL A GIANT ECONOMIC ENGINE FOR THE LOUISIANA ECONOMY (2014) (an economic impact study of the oil and gas industry commissioned by Mid-Continent Oil and Gas Association in partnership with Grow Louisiana Coalition). 3. Id. at iii. 4. Id. 5. See Louisiana State Mineral Royalty Revenue , LA. DEP’T NAT. RESOURCES, http://dnr.louisiana.gov/assets/TAD/data/facts_and_figures/table28.htm [perma.cc/7 G9D-MYLB] (last updated May 27, 2015) (showing that the state of Louisiana had a revenue of $568.42 million from mineral leases in 2013). 6. Id. 7. See LA. REV. STAT. ANN. §§ 31:139, :140, :212.23(C) (2000). Title 31 of the Louisiana Revised Statutes is typically referred to as the “Louisiana Mineral Code,” and the sections of the Title 31 are typically referred to as “articles.” Id. § 31:1. Accordingly, this Comment will refer to all sections of Title 31 as articles of the Louisiana Mineral Code. 8. Id. § 31:139; accord id. § 31:140; see also id. § 31:212.23(C) (“[T]he court may award as damages double the amount due, legal interest on that sum from the date due, and a reasonable attorney’s fee . . . .”). Louisiana Mineral Code article 31:138.1(D) uses the same language, except the award is mandatory rather than discretionary. Id. § 31:138.1(D). 9. Compare Cimarex Energy Co. v. Mauboules, 40 So. 3d 931, 952 (La. 2010) (Knoll, J., dissenting) (stating that the natural reading of Mineral Code article 212.21 calls for double, rather than treble the amount of royalties due as damages), with Cimarex Energy Co. v. Mauboules, 6 So. 3d 399, 407 (La. Ct. App. 3d 2009) (holding that Mineral Code article 212.23(C) provides for treble damages), and Wegman v. Cent. Transmission, Inc., 499 So. 2d 436, 451–52 (La. Ct. App. 2d 1986) (affirming the trial court’s JNOV award of triple the amount of 2016] COMMENT 997 One side of this debate believes that the statute clearly provides for damages worth twice the amount of royalties due. The other side asserts that the damages clause is separate and that the court must add the double royalties penalty to the original unpaid royalty, essentially resulting in treble damages. 10 This interpretive discrepancy has the potential to create a multi-million dollar difference in the amount of damages awarded. 11 Louisiana courts should recognize that Mineral Code articles 138.1, 139, 140, and 212.23 do not provide for treble damages. In an effort to increase the clarity of the law, the legislature should revise the wording of these Mineral Code articles to expressly state that courts may grant a total award in an amount less than twice the value of royalties due. At a minimum, the legislature should add a comment to the applicable articles and explain that the articles allow for double rather than treble damages. This Comment seeks to end the debate over the interpretation of Mineral Code articles 138.1, 139, 140, and 212.23 by showing that treble damages are not appropriate for a lessee’s failure to pay royalties. Part I gives a brief overview of the applicable laws regulating the oil and gas industry, including a short history of how the Louisiana Supreme Court molded the body of mineral law through its decisions, which were later codified in the Louisiana Mineral Code. Part II uses civilian interpretive methods to illustrate the two conflicting interpretations of the Mineral Code articles. Part III concludes that the Mineral Code provides for double damages and proposes two possible legislative actions to make this abundantly clear. I. THE LAW OF THE LAND: THE LOUISIANA MINERAL CODE Louisiana courts and scholars have disagreed on the interpretation of several Mineral Code articles. 12 The language from Mineral Code articles 139, 140, and 212.23 states that “the court may award as damages double the amount of royalties due.” 13 An exploration of the development of royalties due pursuant to Mineral Code article 140 after the jury awarded double damages). 10. See supra note 9. Treble damages refer to penalty damages amounting to three times the value of actual damages. For example: John (lessee) was supposed to pay $1,000 in royalties to Steve (lessor) and did not. Under these articles, a court could award Steve a total of $3,000 if it interprets the articles to allow for “treble damages.” 11. See Cimarex , 6 So. 3d at 407 (deciding whether the total award for unpaid royalties worth $3.2 million should amount to $6.4 million (double the unpaid royalties) or $9.6 million (treble the unpaid royalties)). 12. See supra note 9. 13. LA. REV. STAT. ANN. §§ 31:139, :140, :212.23. 998 LOUISIANA LAW REVIEW [Vol. 76 Louisiana law, stemming from the Civil Code and the Mineral Code, helps to interpret these articles. A. The Development of Mineral Law in Louisiana After the discovery of oil and gas in Louisiana, the courts had significant difficulties with issues related to oil and gas because the Civil Code did not provide specifically for mineral interests. 14 In fact, the legislature did not add the term “mineral interest” to the Civil Code until 1940. 15 This presented a unique problem in Louisiana—unlike the 49 common law states, legislation and custom are Louisiana’s only recognized sources of law. 16 The restriction to rendering decisions based on legislation or custom proved to be difficult for courts once oil and gas issues arose. 17 The Louisiana Supreme Court recognized the potential value of the oil and gas industry and attempted to lay the ground rules of the industry on a case-by-case basis. 18 The Court began developing a body of law through its decisions by analogizing new mineral law issues to existing Civil Code articles, attempting to remain true to the principles of the Civil Code. 19 The Louisiana Supreme Court case of Frost-Johnson Lumber Co. v. Salling’s Heirs illustrates this inductive process. 20 In Frost-Johnson , the Court decided the nature of a grant or reservation of minerals under Louisiana law. 21 The Court needed to determine whether the right to 14. See Natalie Oil Co. v. La. Ry. & Navigation Co., 69 So. 146, 147 (La. 1915) (“The difficulty with the articles of the Code of Practice is that they were framed at a time when the nature and existence of oil under the...