Estess et al v. Placid Oil Co

Filing 22

MEMORANDUM RULING re 13 MOTION to Dismiss For Failure to State a Claim Plaintiffs' Complaint filed by Placid Oil Co; granting 21 MOTION for Leave to File Reply to Sur-Reply Memorandum with consent filed by Placid Oil Co. Signed by Judge S Maurice Hicks on 4/10/2012. (crt,Keifer, K)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION

DELBERT LAFITTE ESTESS, ET AL.

CIVIL ACTION NO. 12-0052

VERSUS

JUDGE S. MAURICE HICKS, JR.

PLACID OIL COMPANY

MAGISTRATE JUDGE HORNSBY

MEMORANDUM RULING
Before the Court is Placid Oil Company’s (“Placid”) Motion to Dismiss Pursuant to
Federal Rule of Civil Procedure 12(b)(6). (Record Document 13). After consideration of
Delbert Estess, Barbara Estess, Joann Ziller, LLC and Gary Estess, LLC’s (“plaintiffs”)
opposition (Record Document 15), plaintiffs’ Sur-Reply Memorandum (Record Document
20) and Placid’s Reply to Sur-Reply (Record Document 21-1),1 Placid’s Motion is DENIED.
BACKGROUND
Plaintiffs brought suit against Placid Oil Company regarding an Oil, Gas, and Mineral
Lease dated August 4, 1972. (Record Document 1-2 at 1). Specifically, plaintiffs allege that
Placid failed to develop the property as a reasonably prudent administrator, failed to seek
a revision of the true drainage area for the unit well, and failed to pay royalties due to
plaintiffs. (Record Document 13 at 5).
Placid has brought this motion to dismiss alleging that “all claims are premature.”
(Record Document 13 at 2). Placid alleges that under the Louisiana Mineral Code, all of the
claims plaintiffs make in their complaint require written notice and a reasonable time to
respond and the plaintiffs failed to give such notice. See id. Plaintiffs respond that they
1

Therefore, Placid’s Motion for Leave to File Reply to Sur-Reply with consent
(Record Document 21) is granted.

properly notified the managing counsel of Placid even though they technically notified him
under the title of managing counsel for Oxy USA, Inc. (“Oxy”), a separate subsidiary of
Occidental Petroleum Corporation. The eventual parent company of both Placid and Oxy
is Occidental Petroleum Corporation.2 Plaintiffs’ further argue that in response to plaintiffs’
demands and under the letterhead of Oxy, Brenton B. Moore (“Moore”), as managing
counsel, held himself out as the representative for both Oxy and Placid. (Record Document
15).
Plaintiffs allege that they sent four letters giving Placid notice of their claims.
Plaintiffs concede that three of those letters, sent by certified mail, were returned to
plaintiffs due to errors in the addresses. However, the fourth letter, sent to Oxy, was
received and responded to by Moore, Managing Counsel of Oxy and Placid.
On May 10, 2011, plaintiffs’ counsel wrote to Oxy, giving Oxy notice of their
demands regarding drainage and failure to develop the property. Moore responded to
plaintiff’s initial demand as follows:
Reference is made to your letter dated May 10, 2011, to
OXY USA Inc. concerning the captioned oil and gas lease. As
you may know, the stock of Placid Oil Company was acquired
by Occidental in the 1990's.
We are in the process of searching for Placid Oil
Company’s files on this lease in order that we can determine
the status of its ownership as well as investigate the allegations
contained with your demand in order that we can properly
respond.
In the interim, should you need to further communicate
on this matter, please direct all correspondence to my
attention.
2

Oxy is a subsidiary of Occidental Petroleum Corporation. (Record Document 1-2
at 18). Placid is a subsidiary of Occidental Oil and Gas Holding Corporation, which is a
subsidiary of Occidental Petroleum Investment Company. Occidental Petroleum
Investment Company is a subsidiary of Occidental Petroleum Corporation. (Record
Document 15 at 1).

(Record Document 1-2 at 18). This correspondence was drafted on Oxy’s letterhead. On
September 10, 2011, plaintiffs’ counsel sent a follow up letter to Moore stating it belief that
Placid owns the lease and putting Oxy on notice of the royalties issue. Plaintiffs’ counsel
states that “this letter is Oxy’s notice and demand to pay my clients royalty [sic].” (Record
Document 1-2 at 20). Moore then responded, in part, to a second demand letter from
plaintiffs as follows:
Placid Oil Company concurs in the belief that it, as
opposed to OXY USA, Inc., owns an interest in the captioned
lease. Placid has written the two operators of producing wells
in units that include your clients’ lease acreage....demanding
that they recognize Placid’s interest, and requesting that they
commence payment of royalties to your clients, or to advise
why they have not paid your clients.
As I advised you over the telephone, Placid is unable to
pay you royalties because Placid has not produced or sold any
oil or gas. As soon as I receive a response...I will apprise you
of their response. If they commence payment of royalties to
you in the meantime, please let me know.
(Record Document 1-2 at 21). This correspondence was drafted on Placid’s letterhead,
which affirmatively shows Placid as a subsidiary of Occidental Petroleum Corporation.
LAW AND ANALYSIS
The Louisiana Mineral Code provides that the Louisiana Civil Code will control in
regards to placing a lessee in default, subject to a few modifications. See La. R.S. 31:135.
One of those modifications is found in La. R.S. 31:136:
If a mineral lessor seeks relief from his lessee arising from
drainage of the property leased or from any other claim that the
lessee has failed to develop and operate the property leased
as a prudent operator, he must give his lessee written notice of
the asserted breach to perform and allow a reasonable time for
performance by the lessee as a prerequisite to a judicial
demand for damages or dissolution of the lease. If a lessee is

found to have had actual or constructive knowledge of
drainage and is held responsible for consequent damages, the
damages may be computed from the time a reasonably
prudent operator would have protected the leased premises
from drainage. In other cases where notice is required by this
Article damages may be computed only from the time the
written notice was received by the lessee.
Further, La. R.S. 31:137 states that “If a mineral lessor seeks relief for the failure of
his lessee to make timely or proper payment of royalties, he must give his lessee written
notice of such failure as a prerequisite to a judicial demand for damages or dissolution of
the lease.” Therefore, it is apparent from a plain reading of the Mineral Code that, for all of
plaintiffs’ claims, notice and reasonable time to cure the alleged breach are required. See
Broussard v. Hilcorp Energy Co., 24 So. 3d 813 (La. 2009). “Under Louisiana law, ‘[t]he
purpose of the requirement of putting in default for non-development is (1) to provide the
lessee notice that the lessor considers the lessee's actions (or inaction) as violative of the
implied obligation to develop the leased premises, and (2) to afford the lessee a reasonable
opportunity to perform its development obligations.’ ” Rathborne Land Co., L.L.C. v. Ascent
Energy, Inc., 610 F.3d 249, 255 (5th Cir. 2010) (citations omitted).
In Lucky v. Encana Oil & Gas (USA), Inc., 46 So.3d 731 (La. App. 2d Cir. 2008), the
plaintiff entered into various oil, gas, and mineral leases with a company called Fite. Fite
then sold an interest in the lease to EnCana, making EnCana Fite’s sublessee. The plaintiff
sent a letter to EnCana alleging that Fite breached the lease and requested termination of
the lease. Subsequently, plaintiff filed suit against Fite and EnCana for breach of the lease.
The court held that notice to EnCana, the sublessee, was insufficient. However, the
reasoning was based on the language of the lease and not the Mineral Code.3 “The trial
3

The court made this distinction because, unlike the motion presently before the
Court, the plaintiff was asserting that its claims fell outside the scope of the above cited

court characterized the application of the provision as a ‘technicality,’ given the fact that
EnCana subsequently forwarded the letter to Fite. However, contracts have the effect of
law for the parties, even if the contractual terms are ‘technicalities.’” See id. at 733. In
Lucky, the court was not persuaded by the fact that the proper party received actual notice
of the demands. The court only focused on the fact that the lease between the parties
required notice to a certain party and the plaintiff did not address its demands to that party.
The Louisiana Supreme Court has not weighed in on this particular issue as of yet.
Therefore, the Court is left to make an Erie guess. “In the absence of a final decision by the
state's highest court on the issue at hand, it is the duty of the federal court to determine,
in its best judgment, how the highest court of the state would resolve the issue if presented
with the same case.” SMI Owen Steel Co., Inc. v. Marsh USA, Inc., 520 F.3d 432, 437 (5th
Cir. 2008).
The lease between plaintiffs and Placid states “in the event Lessor considers that
operations are not being conducted in compliance with this contract, Lessee shall be
notified in writing of the facts relied upon as constituting a breach hereof and Lessee shall
have sixty (60) days after receipt of such notice to comply with the obligations imposed by
virtue of this instrument.” (Record Document 1-2 at 9).
Both the Mineral Code and the parties’ lease requires plaintiffs to give the lessee
written notice of demands like the ones in this matter. In this instance, written notice was
not directed to Placid, but Oxy. It is undisputed that Oxy, or its parent company, Occidental
Petroleum Corporation, are not lessees of record to this lease. Under Lucky, Louisiana
courts might not be persuaded by the fact that Oxy USA Inc. forwarded the notice to Placid.

Louisiana Mineral Code articles.

However, what distinguishes this case from Lucky is that when written notice was given to
Brenton Moore, managing counsel for Oxy, it was simultaneously provided to Brenton
Moore, managing counsel for Placid. Even though the correspondence was addressed to
Oxy, Moore made it clear in his reply correspondence that he was responding on behalf of
Oxy and Placid, if for no other reason than the fact he wrote one letter on Oxy letterhead
and one on Placid letterhead, while serving as the managing counsel for both. Unlike
Lucky, where the “technicality” was giving notice to a sub-lessee as opposed to a lessee,
here, the supposed “technicality” was mailing the lessor’s demand letter to Oxy’s managing
counsel instead of Placid’s, when, in fact, both companies happen to have the same
corporate counsel with the same title.4
Placid was placed on notice of plaintiffs’ claims. Moore responded to plaintiffs on
Placid’s letterhead asserting Placid’s position on plaintiffs’ demands. The only way this
notice could be deemed insufficient is if a Louisiana court would focus solely on the fact the
letters were addressed to Oxy and not Placid and ignore that Moore, managing counsel of
both companies, instructed plaintiffs’ counsel to direct all correspondence to him. Plaintiffs
gave written notice of all the claims at issue to Placid’s managing counsel and therefore
dismissal is inappropriate.
CONCLUSION
Plaintiffs sent written notification of the demands made in this matter to Brenton
Moore, the managing counsel of Placid Oil Company. Placid Oil Company is the lessee of
the lease at issue. Therefore, this written notification satisfies both the Louisiana Mineral

4

Moore may, in fact, wear two different hats as managing counsel for two
different subsidiaries of Occidental Petroleum Corporation; however, the Court is
convinced that the two hats cover the same head.

Code’s requirements of notice as well as the parties’ lease requirements of notice.
Accordingly,
IT IS ORDERED that Placid’s Motion for Leave to File Reply to Sur-Reply
Memorandum (Record Document 21) is GRANTED.
IT IS FURTHER ORDERED that the Motion to Dismiss Pursuant to Fed. R. Civ. P.
12(B)(6) (Record Document 13) is DENIED.
THUS DONE AND SIGNED at Shreveport, Louisiana, this the 10th day of April,
2012.