Slattery Co Inc v. Chesapeake Louisiana L P et al

Filing 65

MEMORANDUM RULING denying 41 Motion for Partial Summary Judgment. Signed by Judge Elizabeth E Foote on 3/19/2013. (crt,Keifer, K)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION

SLATTERY CO. INC.

CIVIL ACTION NO. 11-cv-1399

VERSUS

JUDGE ELIZABETH ERNY FOOTE

CHESAPEAKE LOUISIANA LP

MAGISTRATE JUDGE MARK HORNSBY

MEMORANDUM RULING
The Plaintiff, Slattery Company, Inc. (“Slattery”), filed suit against Defendant
Chesapeake Louisiana LP (“Chesapeake”), asserting that Chesapeake failed to timely pay
royalties on two wells and that Chesapeake has improperly withheld post-production
charges from Slattery’s royalty payments. Currently before the Court is Slattery’s motion
for partial summary judgment, which seeks a ruling from the Court that it is entitled to
double damages, attorney’s fees, and interest due to Chesapeake’s failure to timely pay
royalties. [Record Document 41]. Chesapeake opposes Slattery’s motion for partial
summary judgment. [Record Document 46]. After a thorough review of the record, the
Court concludes that there are genuine issues of material fact which preclude the grant of
summary judgment. Accordingly, Slattery’s motion for partial summary judgment [Record
Document 41] shall be DENIED.

FACTUAL BACKGROUND
The facts of this dispute are fairly straightforward. Among others, Slattery owns the
land and mineral rights to acreage in Sections 14 and 23, Township 16 North, Range 14
West, in Caddo Parish, Louisiana. Chesapeake is the mineral lessee on Sections 14 and 23.
The wells at issue here are the HA RA SUQ; SLATTERY 14-16-14 H well (the “Slattery
well”) and the HA RA SU116; THOMPSON 23-16-14H well (the “Thompson well”). The
Slattery well was completed on approximately January 22, 2011, while the Thompson well
was completed on approximately February 8, 2011. By April, Chesapeake had not yet paid
Slattery any royalties from the production on these wells, although there had been email
communications between the parties regarding when Chesapeake expected to pay
royalties. In fact, on April 1, 2011, Ben Russ, Chesapeake’s Division Counsel for the
Southern Division, notified Slattery (via its attorney Bernard Johnson) that the first royalty
distribution for the Slattery well would be in May and the first royalty distribution for the
Thompson well would be in June, 120 days after production, respectively. See Record
Document 45-1, p. 11.
By letter dated April 13, 2011, Slattery officially notified Chesapeake in writing of
its demand for royalty payments:
On behalf of the Slattery Company, Inc., this letter will serve as formal
demand for you to pay them any and all royalties due from this well [the
Slattery and Thompson wells] within thirty (30) days of the date of this letter,
or my client has instructed me to seek all remedies allowed under the
Louisiana Mineral Code under La. R.S. 31:137 et seq. including but not being
limited to, double the amount of royalties due, interest, attorney fees and
dissolution of the lease.

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Record Document 41-3, p. 10. Chesapeake received the letter on April 15, 2011 and
responded in writing on May 13, 2011, stating in pertinent part:
As noted in your letter, first sales for the Slattery 14 occurred in January 2011
and first sales for the Thompson 23 occurred in February 2011. We are
setting up your royalty interest in our system and the Slattery Company will
receive division orders soon. Regardless, royalty distributions for the
Slattery 14 will begin in May and distributions for the Thompson 23 will
begin in June.
Record Document 41-3, p. 13. However, instead of paying in May and June, respectively,
as Chesapeake represented it would do, Chesapeake did not actually pay royalties on the
Slattery well until June 29, 2011, while royalties on the Thompson well were not paid until
September 29, 2011. Based on this delay in payment and Chesapeake’s alleged lack of a
reasonable cause for nonpayment, Slattery submits that it is entitled to partial summary
judgment awarding it double damages, attorney’s fees, and interest on the royalty
payments.
LAW AND ANALYSIS
I.

Motion for Summary Judgment.
Summary judgment is proper pursuant to Rule 56 of the Federal Rules of Civil

Procedure “if the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp.
v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The materiality of
facts is determined by the substantive law’s identification of which facts are critical and
which facts are irrelevant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct.
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2505, 2510 (1986). A genuine issue of material fact exists when the “evidence is such that
a reasonable jury could return a verdict for the nonmoving party.” Id. “Factual disputes
that are irrelevant or unnecessary will not be counted.” Id.
Rule 56(c) “mandates the entry of summary judgment, after adequate time for
discovery and upon motion, against a party who fails to make a showing sufficient to
establish the existence of an element essential to that party’s case, and on which that party
will bear the burden of proof at trial.” Id. at 322, 106 S. Ct. at 2552. If the party moving for
summary judgment fails to satisfy its initial burden of demonstrating the absence of a
genuine issue of material fact, the motion must be denied, regardless of the nonmovant's
response. See Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). If the
motion is properly made, however, Rule 56(c) requires the nonmovant to go “beyond the
pleadings and designate specific facts in the record showing that there is a genuine issue
for trial.” Wallace v. Texas Tech. Univ., 80 F.3d 1042, 1047 (5th Cir. 1996) (citations
omitted). While the nonmovant’s burden may not be satisfied by conclusory allegations,
unsubstantiated assertions, metaphysical doubt as to the facts, or a scintilla of evidence,
Little, 37 F.3d at 1075, Wallace, 80 F.3d at 1047, all factual controversies must be resolved
in favor of the nonmovant. See Cooper Tire & Rubber Co. v. Farese, 423 F.3d 446, 456 (5th
Cir. 2005). However, a factual controversy only exists when “both parties have submitted
evidence of contradictory facts.” Little, 37 F.3d at 1075.

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Local Rule 56.1 requires the moving party to file a statement of material facts as to
which it contends there is no genuine issue to be tried. Pursuant to Local Rule 56.2, the
party opposing the motion for summary judgment must set forth a “short and concise
statement of the material facts as to which there exists a genuine issue to be tried.” All
material facts set forth in the statement required to be served by the moving party “will be
deemed admitted, for purposes of the motion, unless controverted as required by this
rule.” Local Rule 56.2.
II.

Slattery’s Motion for Partial Summary Judgment.
As previously mentioned, Slattery’s motion for partial summary judgment seeks

double damages, attorney’s fees, and interest on the unpaid royalties from the Slattery and
Thompson wells, alleging that these damages are appropriate under the Louisiana Mineral
Code. Pursuant to the Louisiana Mineral Code, when a mineral lessor is seeking damages
due to the lessee’s nonpayment of royalties, Louisiana Revised Statute 31:137 requires the
lessor to give the lessee written notice of his demand for performance before seeking court
intervention. La. R.S. 31:138 then gives the lessee thirty days to either (1) pay the royalties
due or (2) respond to the lessor in writing, providing a reasonable cause for nonpayment.
However, “[t]he Mineral Code provisions do not define what constitutes a reasonable
response . . . .” Chevron USA, Inc. v. Vermilion Parish Sch. Bd., 377 F.3d 459, 463 (5th Cir.
2004).

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If the lessee pays the royalties in response to the lessor’s demand, La. R.S. 31:139
precludes dissolution of the lease as a remedy, except in the case of fraud; however if the
failure to pay the royalties was fraudulent or willful and without reasonable grounds, the
court may award double damages, interest, and attorney’s fees. If the lessee pays the
royalties but the initial nonpayment is deemed to be the result of oversight or neglect,
damages are limited to interest on the royalties from the due date and attorney’s fees. If,
however, the lessee does not pay the royalties due within thirty days of demand or does
not provide a reasonable explanation for nonpayment, La. R.S. 31:140 allows the court to
award double damages, interest, attorney’s fees, and possibly lease dissolution. Louisiana
state courts have interpreted La. R.S. 31:140 to mean that if the lessee gives a reasonable
explanation for nonpayment within thirty days, then the only remedy available to the
lessor is interest on the amount of the royalties owed. See Arceneaux v. Hawkins, 376 So.
2d 362, 366 (La. App. 3 Cir. 1979). In the instant case, it is undisputed that Chesapeake did
not pay the royalties within thirty days of Slattery’s demand letter; thus, La. R.S. 31:139
(where payment is made within thirty days) is inapplicable and only the damages
permitted by La. R.S. 31:140 are at issue here.
The Court notes at the outset that the determination of what constitutes “reasonable
cause” is primarily a fact question. See Arceneaux, 376 So. 2d at 366 (court may determine
“as a matter of fact, whether the cause of delay . . . is a reasonable cause”)(emphasis added);
Oracle 1031 Exch., LLC v. Bourque, 2011-1133 (La. App. 3 Cir. 2/8/12), 85 So. 3d 736, 741
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(district court’s determination that lessee’s actions in delaying payment “were either
fraudulent or willful and without reasonable grounds” was a finding of fact); Hilliard v.
Amoco Prod. Co., 95-1366 (La. App. 3 Cir. 10/9/96); 688 So. 2d 1176, 1178 (to determine
whether withholding of royalty payments was unjustified, willful, and without reasonable
cause, trial court had to “weigh all the factual findings and credibility of witnesses”).1 The
Court finds that this case similarly presents fact questions which cannot be resolved on
summary judgment.
A necessary precondition to the award of damages is a finding that the mineral
royalties were actually “due.” Although this proposition, in theory, seems self-evident and
rather simplistic, the law is unclear as to when royalties become due. Quoting Hilliard,
Slattery argues that “royalties to the land owners are due from the time the product is
produced.” While the Court agrees that the Hilliard case does make this assertion, there
is no jurisprudential support for that statement, nor can the Court locate any on its own.
Chesapeake, on the other hand, points out that La. R.S. 31:123 instructs that a lessee “is
obligated to make timely payment of rent according to the terms of the contract or the
custom of the mining industry in question if the contract is silent.” Because the contract

1

The Court’s research located only two cases wherein the issue of reasonable cause was
disposed of at the summary judgment phase: Adams v. BP America Production Co., 2012 WL
1038035 (W.D. La. Mar. 27, 2012) and Bickham v. Amoco Production Co., 1993 WL 302677 (E.D.
La. Aug. 5, 1993). Both of those cases are readily distinguishable from the facts of the instant

case.
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between Slattery and Chesapeake was silent on this point, Chesapeake submits that
royalties are due according to industry custom, which is a fact question whose resolution
is improper on summary judgment.2 The Court finds that there is a genuine issue of
material fact as to whether royalties were, in fact, due at the time when Slattery issued its
demand.3
In addition, the Court finds that there is a genuine issue of material fact as to
whether Chesapeake’s response stated a “reasonable cause” for its nonpayment. Taken in
isolation, Chesapeake’s letter could be construed as a response only, without any sort of
reason or explanation given whatsoever. However, given the email exchanges between the
parties prior to the demand letter and the response, it may be determined that all of these
communications, taken together, provided a reasonable cause for the 120 day delay in

2

The Court does not find that the declaration of Jonathan Ellis, Chesapeake’s consultant
as to industry custom, is competent summary judgment evidence. Ellis’s resume is not
attached, as indicated. More troubling, however, is that Ellis offers an opinion on the ultimate
issue- whether the 120 day delay in payment was in line with industry custom- without
providing any explanation as to how he arrived at this conclusion, the materials on which he
relied in reaching same, or his methodology. As noted by Slattery, his opinion is entirely
conclusory. Accordingly, Ellis’s declaration is insufficient to defeat summary judgment and
has not been considered by the Court.
3

Although Slattery asserts that Chesapeake’s reliance on industry custom as a defense
to nonpayment is an affirmative defense which has been waived, the Court disagrees. Rather,
it is the plaintiff’s burden to establish that royalties were due when the demand was issued,
thus the plaintiff bears the burden of proof on this element.

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payment.4 It is also a fact question whether Chesapeake’s reason for nonpayment stemmed
from the need for a division order, as implied by its response letter, yet denied in its
opposition to Slattery’s motion for partial summary judgment.
CONCLUSION
Based on the foregoing, the Court finds there are genuine issues of material fact,
which preclude the grant of summary judgment. Accordingly, Slattery’s motion for partial
summary judgment [Record Document 41] be and is hereby DENIED.
THUS DONE AND SIGNED on this 19th day of March, 2013.

4

It may also be found that the series of emails between the parties constituted an
ongoing narrative which would be informative in the determination of when the royalties were
due.

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