Adams v. Chesapeake Operating Inc

Filing 18

MEMORANDUM RULING re 12 MOTION for Partial Summary Judgment filed by Chesapeake Operating Inc. Signed by Judge S Maurice Hicks on 12/20/2011. (crt,McDonnell, D)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION

TYLER EUGENE ADAMS, JR.

CIVIL ACTION NO. 11-01504

VERSUS

JUDGE S. MAURICE HICKS

CHESAPEAKE OPERATING, INC.

MAGISTRATE JUDGE HORNSBY

MEMORANDUM RULING
Before the Court is Defendant Chesapeake Operating, Inc.’s (“Chesapeake”)
Motion for Partial Summary Judgment. (Record Document 12). Chesapeake moves
the Court to dismiss the portions of Plaintiff Tyler Eugene Adams, Jr.’s (“Adams”)
claim seeking double the amount of payments and legal interest due to Adams as
a result of mineral interests he possesses. Chesapeake further moves the Court to
dismiss Adams’ claim for attorney’s fees. Upon a review of the record, including
Adams’ opposition to Chesapeake’s motion (Record Document 16), Chesapeake’s
Motion for Partial Summary Judgment is GRANTED.
BACKGROUND
Adams owns an undivided one-third interest in certain property located in
DeSoto Parish, Louisiana. (Record Document 2 at 1). Adams’ property is “located
in a drilling and production unit authorized by the Commissioner of Conservation.”
See id. The unit is being produced by an “Oil & Gas Well...which was completed on
October 25, 2010, by Chesapeake Operating, Inc., who is operating the well and

production unit.” See id. Adams concedes that his property is not subject to any
mineral lease. See id.
On February 10, 2011, Adams sent Chesapeake a letter pursuant to La. R.S.
30:103.1,1 requesting reports, information and statements required under the statute.
See id. The letter stated that Chesapeake had failed to comply with La. R.S.

1

La. R.S. 30:103.1 reads:
“103.1. Operators and producers to report to owners of unleased oil and gas interests:
A. Whenever there is included within a drilling unit, as authorized by the commissioner of
conservation, lands producing oil or gas, or both, upon which the operator or producer has no
valid oil, gas, or mineral lease, said operator or producer shall issue the following reports to the
owners of said interests by a sworn, detailed, itemized statement:
(1) Within ninety calendar days from completion of the well, an initial report which shall contain
the costs of drilling, completing, and equipping the unit well.
(2) After establishment of production from the unit well, quarterly reports which shall contain
the following:
(a) The total amount of oil, gas, or other hydrocarbons produced from the lands during the
previous quarter.
(b) The price received from any purchaser of unit production.
(c) Quarterly operating costs and expenses.
(d) Any additional funds expended to enhance or restore the production of the unit well.
B. No operator or producer shall be required under the provisions of this Section to report any
information which is not known by such operator or producer at the time of a report. However,
the operator or producer shall report the required information to the owner of the unleased
interest within thirty days after such information is obtained by the operator or producer, or in
the next quarterly report, whichever due date is later.
C. Reports shall be sent by certified mail to each owner of an unleased oil or gas interest who has
requested such reports in writing, by certified mail addressed to the operator or producer. The
written request shall contain the unleased interest owner's name and address. Initial reports shall
be sent no later than ninety calendar days after the completion of the well. The operator or
producer shall begin sending quarterly reports within ninety calendar days after receiving the
written request, whichever is later, and shall continue sending quarterly reports until cessation of
production.
D. Notwithstanding any other provision of this Section to the contrary, at the time a report is due
pursuant to this Section, if the share of the total costs of drilling, completing, and equipping the
unit well and all other unit costs allocable to an owner of an unleased interest is less than one
thousand dollars, no report shall be required. However, during January of the next calendar year,
the operator or producer shall report such costs to the owner.”
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30:103.1. See id. Adams alleges that Chesapeake did not respond within the thirty
day’s as required by La. R.S. 30:103.2.2 (Record Document 2 at 2). As such, Adams
alleges that Chesapeake forfeited any right it had to demand contribution for his “pro
rata share of the cost of drilling and competition of the well.” See id. On April 14,
2011, Adams’ sent another letter to Chesapeake detailing the effect of
Chesapeake’s failure to respond. See id. This letter also contained a “demand for
production payments” to begin within thirty days of the receipt of the letter. See id.
As a result of these occurrences, Adams filed a law suit in state court, which
Chesapeake timely removed to federal court. (Record Document 1). Adams alleges
that he is owed “production payments” as well as “a penalty up to twice that amount
and interest from date due, as well as reasonable attorney’s fees.” (Record
Document 2 at 2). Chesapeake has filed this motion requesting the Court grant
summary judgment on the issue of the penalty and attorney’s fees only. (Record
Document 12).

2

La. R.S. 30:103.2 reads:
“103.2. Failure to report; penalty
Whenever the operator or producer permits ninety calendar days to elapse from completion of
the well and thirty additional calendar days to elapse from date of receipt of written notice by
certified mail from the owner or owners of unleased oil and gas interests calling attention to
failure to comply with the provisions of R.S. 30:103.1, such operator or producer shall forfeit his
right to demand contribution from the owner or owners of the unleased oil and gas interests for
the costs of the drilling operations of the well.”
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LAW AND ANALYSIS
In the motion currently before this Court, Chesapeake challenges the portion
of Adams’ complaint that claims Chesapeake is liable to him for “double the amount
of payments due, legal interest on that sum from date due, and reasonable
attorney’s fees.” (Record Document 12 at 2).
Adams’ request for this penalty and attorney’s fees comes from La. R.S.
31:212.21-23, which read as follows:
Chapter 13. Miscellaneous Provisions
Part 2-A. Production Payments and Royalty Payments to
Other Than Mineral Lessor; Remedies of Obligee
§ 212.21. Nonpayment of production payment or royalties;
notice prerequisite to judicial demand
If the owner of a mineral production payment or a royalty
owner other than a mineral lessor seeks relief for the
failure of a mineral lessee to make timely or proper
payment of royalties or the production payment, he must
give his obligor written notice of such failure as a
prerequisite to a judicial demand for damages.
§ 212.22. Required response of obligor to notice
The obligor shall have thirty days after receipt of the
required notice within which to pay the royalties or
production payments due or to respond by stating in
writing a reasonable cause for nonpayment. The payment
or nonpayment of the sums due or stating or failing to
state a reasonable cause for nonpayment within this
period has the following effect.
§ 212.23. Effects of payment or nonpayment with or
without stating reasonable cause therefor; division order
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A. If the obligor pays the royalties or production payments
due plus the legal interest applicable from the date
payment was due, the owner shall have no further claim
with respect to those payments.
B. If the obligor fails to pay within the thirty days from
notice but states a reasonable cause for nonpayment,
then damages shall be limited to legal interest on the
amounts due from the date due.
C. If the obligor fails to pay and fails to state a reasonable
cause for failure to pay in response to the notice, the court
may award as damages double the amount due, legal
interest on that sum from the date due, and a reasonable
attorney's fee regardless of the cause for the original
failure to pay.
Chesapeake argues that since Adams is an “unleased landowner,” he does
not come within the purview of the above listed statutes as he is not a royalty owner
or entitled to a “production payment.” (Record Document 12). Adams, however,
argues that payments due to an “unleased mineral owner” are “another type of
production payment.” (Record Document 16 at 4).
The rules for contract interpretation in Louisiana are found in the Louisiana
Civil Code. Willis-Knighton Medical Center v. Caddo, 903 So.2d 1071 (La. 2005).
“Chief among those rules is the admonition in LSA-C.C. art. 9 that ‘[w]hen a law is
clear and unambiguous and its application does not lead to absurd consequences,
the law shall be applied as written and no further interpretation may be made in
search of the intent of the legislature.’ Additionally, LSA-C.C. art. 11 instructs that

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‘[t]he words of a law must be given their generally prevailing meaning.’” See id. at
1085.
It is undisputed that there is no lease connecting the two parties in this matter.
(Record Document 2 at 1). From a plain reading of the applicable statues, it is clear
that Part 2-A of Chapter 13 of Title 31 applies to parties connected, in some form,
whether directly or indirectly, by a mineral lease or some type of contract or
agreement. La R.S. 31:212.21 refers to the “failure of a mineral lessee” and the title
of the act that enacted Part 2-A of Chapter 13 of Title 31 reads,
An Act to enact Part 2-A of Chapter 13 of Title 31 of the
Louisiana Revised Statutes of 1950, to be comprised of
R.S. 31:212.21 through R.S. 31:212.23, to provide for the
remedies and procedure for obtaining payment by a
royalty owner other than a mineral lessor and by the
purchaser of a mineral production payment; to provide for
damages, interest, and attorney fees, and the
circumstances under which they may be obtained; and to
provide for related matters. Acts 1982, No. 249.
(Record Document 17-2 at 3) (emphasis added). The Court makes no determination
as to the definition of production payments as one is not needed in this set of
circumstances.3 What is clear from a reading of all of the applicable legislation is
that, at a minimum, La. R.S. 31:212.21-.23 requires either a mineral lease or the
purchase of a mineral production payment. There is no lease connecting
Chesapeake and Adams and Adams did not purchase a mineral production
3

The Court notes that the Louisiana Mineral Code does not provide a definition of
“production payments” and Adams fails to cite to any legal authority supporting the
definition he asserts.
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payment. Therefore, on the narrow issue of this summary judgment, the Court finds
that La. R.S. 31:212.21-.23 is not applicable in this matter. Therefore, Chesapeake
is entitled to summary judgment on the issue of the penalties set out in those
sections of law.
CONCLUSION
Adams is a Desoto Parish landowner without a mineral lease to anyone
burdening his property. Additionally, Adams did not purchase a mineral production
payment. Adams is merely a part of a drilling and production unit as authorized by
the Louisiana Commission of Conservation. Thus, Adams is not entitled to the
double damages, legal interest or attorney’s fees provided for under La R.S. 31:
212.21-.23.
Accordingly,
IT IS ORDERED that Chesapeake’s Motion for Partial Summary Judgment be
and hereby is GRANTED.
THUS DONE AND SIGNED in Shreveport, Louisiana on this 20th day of
December, 2011.

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