Mariner Energy, Inc. et al v. Devon Energy Production Co., L.P.
Filing
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MEMORANDUM AND ORDER entered: Mariners motion for partial summary judgment, (Docket Entry No. 80), is granted. Devons motion for partial summary judgment, (Docket Entry No. 79), is denied. By February 3, 2012, the parties must file a proposed order entering final judgment in this case.(Signed by Judge Lee H Rosenthal) Parties notified.(leddins, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
MARINER ENERGY, INC., et al.,
Plaintiffs,
v.
DEVON ENERGY PRODUCTION CO.,
Defendant.
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CIVIL ACTION NO. H-08-0658
MEMORANDUM AND ORDER
I.
Background
This court’s opinion in Mariner Energy, Inc. v. Devon Energy Production Co., 690 F. Supp.
2d 558 (S.D. Tex. 2010), sets out the background facts in detail. This memorandum and order
addresses a limited legal issue: whether, under Louisiana law, the prevailing party in this suit is
entitled to prejudgment interest. The facts are only briefly summarized here. This dispute arises
from a letter agreement between Forest Oil Corporation, predecessor in interest to the plaintiffs,
Mariner Energy, Inc. and Mariner Energy Resources, Inc. (together, “Mariner”), and the defendant,
Devon Energy Production Co. The letter agreement addressed, in part, the parties’ obligations to
pay for abandoning an offshore oil and gas block located in the Gulf of Mexico. That block is
referred to during this litigation as EI 333. In this suit against Devon, Mariner sought a declaratory
judgment that it was not liable under the letter agreement for abandonment costs resulting from
damage to EI 333 inflicted by Hurricane Rita in 2005. Mariner also sought to recover money it
allegedly overpaid Devon for hurricane damage to EI 333. Devon counterclaimed under the same
letter agreement, asserting that Mariner had breached its contract by refusing to pay its full
proportionate share of the hurricane-related costs and seeking a declaratory judgment that Devon
was liable for those costs.
The court bifurcated the case into a liability phase and a damages phase. The liability phase
is now complete. In two prior rulings, this court entered partial summary judgment in Mariner’s
favor on issues related to the parties’ liability for abandonment costs under the letter agreement.
Based on these rulings, the parties agree that Mariner paid Devon $4,433,575.49 that Mariner did
not owe and that Devon must return this amount. The parties disagree over whether Mariner is
entitled to prejudgment interest on the overpayment and filed cross-motions for summary judgment
on this issue. Devon’s motion argues that Louisiana law does not allow prejudgment interest on
legitimately contested unjust-enrichment claims. (Docket Entry No. 79, at 5–8.) Mariner’s motion
argues that Louisiana law allows prejudgment interest when “the unjust enrichment claim arises
from overpayment under a valid contract.” (Docket Entry No. 80, at 17.) Both parties have
responded to each other’s motions. (Docket Entries No. 82 & 83.)
Based on the pleadings; the motions and responses; and the relevant law, this court concludes
that Mariner is entitled to prejudgment interest, but only from the date of judicial demand and not
from the earlier date of the payment. The reasons for this ruling are explained below.
II.
Analysis1
Articles 2298 through 2305 of the Louisiana Civil Code address unjust enrichment and
recognize two causes of action: enrichment without cause and payment of a thing not owed. Article
2298, which governs enrichment without cause, states that “[a] person who has been enriched
without cause at the expense of another person is bound to compensate that person.” LA. CIV. CODE
1
Summary judgment is appropriate when, as here, no genuine issue of material fact exists and the moving party
is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
2
ANN. art. 2298 (2010). Article 2298 is “based on the concept that one who benefits by the labor and
materials of another should not be unjustly enriched thereby. Under those circumstances, the law
implies a promise to pay a reasonable amount for the labor and materials furnished, even absent a
specific contract therefor.” Ricky’s Diesel Serv., Inc. v. Pinell, 906 So.2d 536, 539 (La. Ct. App.
2005). “The amount of compensation due is measured by the extent to which one has been enriched
or the other has been impoverished, whichever is less.” LA. CIV. CODE ANN. art. 2298. Enrichment
without cause is a “subsidiary” remedy that is “not be available if the law provides another remedy
for the impoverishment.” Id. Louisiana law does not allow prejudgment interest on recovery for
enrichment without cause under article 2298 involving services or materials rendered for the benefit
of another. See, e.g., Gulfstream Servs., Inc. v. Hot Energy Servs., Inc., 907 So.2d 96, 103 (La. Ct.
App. 2005) (holding that the plaintiff was not entitled to prejudgment interest on the amount
recovered as compensation for the defendant’s use of its oil tanks); Howell v. Rhoades, 547 So.2d
1087, 1090 (La. Ct. App. 1989) (holding that the plaintiff, who recovered the value of his services
for preparing architectural plans, was not entitled to prejudgment interest).
Article 2299 governs the cause of action for payment of a thing not owed. The article states
that “[a] person who has received a payment or a thing not owed to him is bound to restore it to the
person from whom he received it.” LA. CIV. CODE ANN. art. 2299. “A thing is not owed when it
is paid or delivered for the discharge of an obligation that does not exist.” Id. art. 2300. “The
remedy that Article 2299 provides is not subsidiary; this remedy is available even if other remedies
are also available” and the plaintiff “may choose the theory of recovery that best suits his interests.”
Id. art. 2299 cmt. (c). In this case, Mariner brought a claim for payment of a thing not owed under
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article 2299.2 The issue is whether Louisiana law3 allows Mariner, as the prevailing party, to
recover prejudgment interest on its article 2299 claim.
Mariner argues that it is entitled to prejudgment interest under article 2000 of the Louisiana
Civil Code. Article 2000 states that “[w]hen the object of the performance is a sum of money,
damages for delay in performance are measured by the interest on that sum from the time it is due,
at the rate agreed by the parties or, in the absence of agreement, at the rate of legal interest as fixed
by R.S. 9:3500.” Id. art. 2000. Article 2000 clearly governs the award of prejudgment interest in
breach of contract cases. See S. Marine Sales, Inc. v. Matherne, 915 So.2d 1042, 1048 (La. Ct. App.
2005) (“The law is clear that legal interest is recoverable on debts arising ex contractu from the time
they become due, unless otherwise stipulated.” (citing LA. CIV. CODE ANN. art. 2000)). But it is
unclear whether article 2000 applies to article 2299 unjust-enrichment claims based on the erroneous
payment of amounts not owed. As Devon points out, the structure of the Louisiana Civil Code
suggests that article 2000 applies only in breach of contract cases. Article 2000 appears in Section
4 (“Damages”) of Chapter 8 (“Effects of Conventional Obligations”) of Title IV (“Conventional
Obligations or Contracts”) of Book III of the Civil Code. By contrast, article 2299 appears in
Section 2 (“Payment of a Thing Not Owed”) of Chapter 2 (“Enrichment Without Cause”) of Title
V (“Obligations Arising Without Agreement”) of Book III of the Civil Code. Because Devon’s
2
Mariner’s unjust enrichment claim alleged as follows: “Mariner asserts that it made payments to Devon in
error for charges which appear to be associated with Hurricane Rita. Mariner is not liable for such charges under the
terms of the Letter Agreement. Devon has thus been unjustly enriched since Mariner had no obligation to make these
payments and Devon has no right to retain such payments. Mariner seeks recovery of all such sums paid to Devon.”
(Compl. ¶ 17.)
3
Because Louisiana is adjacent to EI 333 and because the Outer Continental Shelf Lands Act (“OCSLA”) is
the jurisdictional basis for this case, the parties agree that Louisiana law governs the award of prejudgment interest. See
Gates v. Shell Offshore, Inc., 881 F.2d 215, 218–19 & n.1 (5th Cir. 1989) (applying Louisiana law as “surrogate federal
law” to determine whether prejudgment interest was allowed in an OCSLA case).
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obligation to return Mariner’s overpayment is a quasi-contractual obligation imposed by article
2299, Devon argues that article 2000 does not apply. Cf. Garlepied Transfer, Inc. v. Guar. Bank &
Trust Co., 685 So.2d 194, 195 (La. Ct. App. 1996) (“[A]rticles [2000 and 2001] are found in Title
IV of the Civil Code, entitled ‘Conventional Obligations or Contracts.’ [The plaintiff’s] damages
were awarded for breach of fiduciary duty, a tort, not a contractual matter.”).
Mariner asserts that article 2000 “was the basis for an award of pre-judgment interest in
Exxon Corp. v. Goodrich, 720 So.2d 17 (La. Ct. App. 1998), a case with facts virtually identical to
those in the case at bar.” (Docket Entry No. 80, at 13.) In Goodrich, Exxon, the operator of natural
gas units, sued the owners of mineral, royalty, and leasehold interests to recover certain
overpayments Exxon had made. The parties’ Joint Operating Contract (“JOC”) provided that if
Exxon invoiced the defendant owners for the payments Exxon had made, the defendants had to pay
Exxon’s invoices within 15 days. Goodrich, 720 So.2d at 23–24. In other words, the contract
imposed an obligation to return the overpayments if they were demanded in an invoice. The contract
also specified a 6% interest rate for unpaid amounts. The trial court held that Exxon was entitled
to recover the overpayments, found that the JOC “mandated that the unpaid balances owed by the
defendants to Exxon bear interest at the rate of 6% per annum,” and awarded prejudgment interest
at the contractual rate. Id. at 23. On appeal, Exxon asserted that “the trial court erred in awarding
interest at the [contractual] rate.” Id. Exxon argued that because the overpayments “were erroneous
payments made for things not due,” they were not governed by the JOC “and, therefore, [were]
subject to legal interest [at the statutory rate].” Id. Rejecting Exxon’s argument, the appellate court
held that the JOC governed. Id. at 24. Because the parties had agreed to a contractual prejudgment
interest rate, the court held that under article 2000 of the Louisiana Civil Code the contractual
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interest rate, not the statutory rate, applied. Id. Goodrich does not support Mariner’s argument that
article 2000 applies to its unjust-enrichment overpayment claim. In Goodrich, the defendants were
contractually obligated to pay Exxon’s invoices, including the invoices for the overpayments. In
this case, Mariner has not identified a contractual provision obligating Devon to return the
overpayments Mariner made.
Although Goodrich does not support the application of article 2000 to article 2299 claims,
Futorian Corp. v. Marx, 420 So.2d 702 (La. Ct. App. 1982), does. In Futorian, a former employer
sued to recover disability benefits paid to a former employee after that employee had gone to work
for a new employer. Id. at 703. The employee did not notify his former employer that he had
returned to work. Id. Instead, after starting the new job, he signed a statement indicating that he
was still disabled and unable to work. Id. The trial court held that the employee had to return the
disability payments he received after returning to work and awarded the former employer
prejudgment interest on the disability payments from the date of judicial demand. Id. at 704. On
appeal, the employee argued “that he should not be cast for interest before judgment because he was
in good faith and La.C.C. 2311 provides only that one in bad faith owes interest from the date of the
erroneous payment.”4 Id. Affirming the decision of the trial court, the Louisiana Court of Appeals
cited the 1982 version of article 1938 of the Louisiana Civil Code and explained:
The judgment here awarded interest only from judicial demand and
not from payment. The general rule is that interest is due from the
time a contractual or quasi-contractual debt is due. La.C.C. 1938.
C.C. 2311 relieves the good faith recipient of funds paid in error from
4
When Futorian was decided, Article 2311 was part of the Louisiana Civil Code articles governing unjust
enrichment. Article 2311 stated that “[i]f there be any want of good faith on the part of him who has received, he is
bound to restore not only the capital, but also the interest on the proceeds from the day of payment.” LA. CIV. CODE
ANN. art. 2311 (1983). In 1995, article 2303 replaced article 2311. Article 2303 states that “[a] person who in bad faith
received a payment or a thing not owed to him is bound to restore it with its fruits and products.” Id. art. 2303 (2010).
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interest from date of payment, but not from the time that the
erroneous nature of the payment is called to his attention. He owes
interest at least from judicial demand.
Id. (emphasis added). The 1982 version of article 19385 was a precursor of article 2000. The 1984
revision comments to the Louisiana Civil Code explain that article 2000 “reproduces the substance”
of former articles 1935, 1937, and 1940, and that with the adoption of article 2000, former articles
1936 and 1938 “ha[ve] been eliminated as unnecessary.” LA. CIVIL CODE ANN. art. 2000 cmts. (a),
(b). Futorian’s application of former article 1938 to an unjust-enrichment overpayment claim
suggests that article 2000 applies to such claims. At least one Louisiana federal district court has
applied article 2000 to an article 2299 claim. See Bank One, N.A. v. A. Levet Props. P’ship, No. Civ.
A. 03-1373, 2004 WL 1661204, at *4 (E.D. La. July 22, 2004).
There is, however, no need for this court to decide whether article 2000 applies to article
2299 overpayment or erroneous payment claims. If article 2000 applies, Mariner is entitled to
prejudgment interest from the date of judicial demand.6 If article 2000 does not apply, the result is
the same. Numerous Louisiana appellate decisions have awarded prejudgment interest from the date
of judicial demand on unjust-enrichment overpayment or erroneous payment claims. See Hebert
v. Jeffrey, 655 So.2d 353, 355 (La. Ct. App. 1995) (holding that an employee had to reimburse his
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Article 1938, titled “Time from which legal interest is due,” stated: “All debts shall bear interest at the rate
of twelve percent per annum from the time they become due, unless otherwise stipulated.” LA. CIV. CODE ANN. art. 1938
(1983).
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Prejudgment interest under article 2000 runs at least from the date of judicial demand, and may run from an
earlier date. See Mini Togs Prods., Inc. v. Wallace, 513 So.2d 867, 875 (La. Ct. App. 1987) (holding that, under article
2000, “legal interest is due at least from [the] date of judicial demand on a claim for damages arising out of breach of
contract, regardless of whether the precise amount of the claim is unliquidated, disputed or not ascertainable with
certainty at the time suit is filed”). Mariner does not argue—nor is there evidence—that Devon retained the
overpayments in bad faith, as required under Futorian to award prejudgment interest on unjust-enrichment overpayment
claims from the date the overpayments were made. Devon retained the overpayments because it believed Mariner was
liable under the letter agreement for the invoiced amounts. Though this court agreed with Mariner’s interpretation of
the letter agreement, the record makes clear that Devon’s disagreement was in good faith.
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employer for worker’s compensation benefits the employer paid but did not owe and awarding
interest from the date of judicial demand); Matthews v. Sun Exploration & Prod. Co., 521 So.2d
1192, 1199 (La. Ct. App. 1988) (holding that a lessee was entitled to recover the amount of royalty
overpayments made under an oil lease “plus interest at the legal rate from date of judicial demand”);
C.H. Fenstermaker & Assocs. v. Regard, 471 So.2d 1137, 1140 (La. Ct. App. 1985) (holding that
a contractor was entitled to recover “what he paid” under an invoice “for services which were to
have been provided . . . at no charge” and awarding interest from the date of judicial demand);
Shelter Ins. Co. v. Cruse, 446 So.2d 893, 895 (La. Ct. App. 1984) (holding that an insurer was
entitled to recover money paid under a void insurance policy from the insured “with legal interest
from judicial demand”); see also Mathews v. La. Health Serv. & Indem. Co., 471 So.2d 1199, 1203
(La. Ct. App. 1985); Head v. Adams, 275 So.2d 476, 479 (La. Ct. App. 1973); Whitehall Oil Co. v.
Boagni, 217 So.2d 707, 709–13 (La. Ct. App. 1969); Monochem, Inc. v. E. Ascension Tel. Co., 195
So.2d 748, 751 (La. Ct. App. 1967); Mfrs. & Traders Trust Co. v. Bank of La. in New Orleans, 167
So.2d 383, 386–87 (La. Ct. App. 1964). Whether under article 2000 or under the Louisiana cases
that have awarded prejudgment interest on unjust-enrichment overpayment or erroneous payment
claims, Mariner is entitled to interest from the date of judicial demand.7
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This result is consistent with the role prejudgment interest serves under Louisiana law. Louisiana courts have
rejected “the common law view of interest as punitive in nature.” Trans-Global Alloy Ltd. v. First Nat’l Bank of
Jefferson Parish, 583 So.2d 443, 457 (La. 1991). Under that view, “when damages are reasonably ascertainable, the
defendant can determine what his liability might be, and stop the accrual of interest by paying the claim; when the
damages are uncertain, however, the defendant cannot determine the extent of his liability prior to trial, and it would be
unjust to penalize him for failure to pay the damages before judgment.” Id. “Under civil law doctrine, however,
damages are viewed as reparation for the loss suffered by the creditor, and not as a penalty imposed on the debtor.” Id.
(citations omitted). Louisiana courts recognize that “money has a ‘use’ value, and that prejudgment interest, which
represents the use which the defendant has had of the money found to be owed to the plaintiff, is a necessary component
of the plaintiff's full compensation.” Id. at 458. “[A]llowing the defendant to keep the interest that could be earned on
the amount eventually awarded would result in his unjust enrichment. The defendant is not penalized by prejudgment
interest because he is only returning the benefits he has received from use of the plaintiff’s money.” Id. (internal
citations omitted).
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Devon cites State v. Placke, 786 So.2d 889 (La. Ct. App. 2001), but that case does not
compel a different result. In Placke, a state hospital overpaid a damage award recovered by the
defendants against the hospital in an underlying medical-malpractice lawsuit. 786 So.2d at 891. In
the underlying litigation, the hospital was found liable for malpractice and the trial court determined
that the defendants’ “actual damages were $3,041,833.75.” Id. at 892. The trial court substantially
reduced this amount because a Louisiana statute imposed a cap on recoveries in medical-malpractice
cases. Id. The hospital “tendered a check in the amount of $1,888,973.99 along with a ‘Satisfaction
of Judgment’” to the defendants. The hospital alleged in the later suit that “the correct figure was
$1,188,973.99.” Id. at 892. After the hospital “discovered that it had paid more than the amount
judicially enforceable against it by statute,” it sued to recover the amount it had overpaid. Id. The
trial court granted the hospital’s motion for summary judgment and required the defendants to “pay
interest from the date of judgment only, rather than from the date of judicial demand.” Id. On
appeal, the defendants argued “that the trial court’s judgment [in the underlying litigation] finding
the State liable for in excess of three million dollars created a natural obligation supporting the
payment of damages above the . . . statutory cap.” Id. The hospital cross-appealed, arguing that it
was entitled to prejudgment interest on the overpayment under article 2303 of the Louisiana Civil
Code.
After rejecting the defendants’ argument that they were entitled to retain the overpayment
based on a natural obligation theory, the appellate court held that the hospital was not entitled to
prejudgment interest under article 2303. Under article 2303, “[a] person who in bad faith received
a payment of a thing not owed to him is bound to restore it with its fruits and products.” LA. CIV.
CODE ANN. art 2303. The court explained that the question before it was “whether or not the
undisputed facts . . . constitute bad faith on the part of the Defendants” in retaining the hospital’s
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overpayment. Placke, 786 So.2d at 897. The court found “that there was a colorable argument for
extending the concept of natural obligation to the State in situations where a court has determined
that a plaintiff has been damaged by the State in an amount greater than that which is judicially
enforceable against it.” Id. Because the defendants “were acting under the belief that they had a
good faith argument for retaining the overpayment,” the court held that, as a matter of law, “no
article 2303 sanctions [were] warranted” and the hospital was not entitled to prejudgment interest
under article 2303. Id.
In Placke, the only issue was whether the prevailing party awarded the overpayment was
entitled to prejudgment interest under article 2303 absent a showing of bad faith. The court did not
address whether the hospital could have recovered prejudgment interest under article 2000 or under
Louisiana cases awarding prejudgment interest on unjust-enrichment overpayment or erroneous
payment claims. Placke does not compel the conclusion that Mariner is not entitled to prejudgment
interest in this case.
III.
Conclusion
Mariner’s motion for partial summary judgment, (Docket Entry No. 80), is granted. Devon’s
motion for partial summary judgment, (Docket Entry No. 79), is denied. By February 3, 2012, the
parties must file a proposed order entering final judgment in this case.
SIGNED on January 30, 2012, at Houston, Texas.
______________________________________
Lee H. Rosenthal
United States District Judge
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