Davis Oil Co. v. Mills

Decision Date15 May 1989
Docket NumberNo. 87-4940,87-4940
PartiesDAVIS OIL COMPANY, et al., Plaintiffs-Appellants, v. William P. MILLS, III, et al., Defendants-Appellees. William P. MILLS, III, et al., Plaintiffs-Appellees, v. DAVIS OIL COMPANY, et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

F. Henri Lapeyre, Jr., Matthew J. Randazzo, III, E. Burt Harris, New Orleans, La., for plaintiffs-appellants.

Kai David Midboe, Baton Rouge, La., for Guste.

Warren D. Rush, Lafayette, La., for Mills, Robertsons and Bridges.

Charles R. Minyard, Lafayette, La., for First Nat.

Appeal from the United States District Court for the Western District of Louisiana.

Before KING, JOHNSON and JOLLY, Circuit Judges.

KING, Circuit Judge:

I.

Plaintiff-appellant Davis Oil Company appeals from the judgment of the district court holding that the Due Process Clause of the fourteenth amendment does not require that a foreclosing mortgagee provide actual notice to a mineral lessee whose lease will, under Louisiana law, be extinguished by the seizure and sale of the subject property.

For the reasons set forth below, we affirm the judgment of the district court.

A. Facts

The underlying facts of this case are largely undisputed and were found by the district court as follows.

In August of 1977, Kenneth Upton ("Upton") purchased a 16.43 acre tract of land (the "tract") located in Lafayette Parish, Louisiana. In May of 1983, Upton mortgaged the property as collateral for a $500,000 loan from defendant First National Bank of Lafayette ("FNB"). The collateral mortgage was properly recorded in the mortgage records of Lafayette Parish. The loan was intended to finance Upton's business, American Tools, Inc.

In November, 1983, Upton granted a mineral lease on the tract to Louisiana Land Management, Inc. ("LLM"). The lease was promptly recorded in the Lafayette Parish conveyance records. On January 30, 1984, LLM assigned the lease to plaintiff Davis Oil Company ("Davis"). This assignment was also promptly recorded.

Upton then defaulted on the loan and on other obligations to FNB in April, 1984. FNB filed suit against Upton and American Tools, Inc., alleging default on the mortgage encumbering the tract. Upton confessed judgment and waived all delays. The judgment reflected a total debt of $3,500,000 and recognized the mortgage affecting the property.

In execution of its judgment, FNB obtained a writ of fieri facias, ordering the Lafayette Parish Sheriff to seize property belonging to Upton. FNB targeted certain properties, including the land leased to Davis, for seizure and judicial sale. FNB was unaware of the mineral lease on the tract. On May 30, 1984, the Sheriff sold the land to FNB after obtaining a certificate of nonmortgage. A deed reflecting the sale was recorded in June, 1984. No actual notice was afforded Davis although the judicial sale was advertised in compliance with article 2331 of the Louisiana Code of Civil Procedure.

On March 10, 1984, a Davis Oil Company well located on property adjacent to the subject tract "blew out," indicating a significant hydrocarbon discovery. In August, 1984, Davis assigned portions of its interest in the lease to Exxon Corporation, Grace Petroleum Corporation, NWT Natural Resources Company, Saturn Energy Company, and Allen E. Paulson (these various assignees will be included in references to "Davis"). These assignments were recorded in November, 1984.

In September, 1984, Davis gave notice that it planned to apply to the Commissioner of Conservation for the establishment of a production unit for Bayou Tortue Well No. 4, incorporating the subject tract. Because defendant William P. Mills III ("Mills") owned nearby property, he was provided with notice of this intent.

On October 31, 1984, Mills and FNB entered into a letter agreement in which FNB agreed to sell the subject tract to Mills. Negotiations continued over the warranty that FNB would deliver. In the interim, Mills obtained a title opinion which specifically questioned the validity of the sheriff's sale on the ground that the mineral lessee may not have received notice of the foreclosure.

On February 4, 1984, the Commissioner of Conservation signed an order incorporating a portion of the subject tract into the Bayou Tortue Well No. 4 production unit. This act guaranteed the subject tract a share in the production from the unit. On February 12, 1985, Mills, John L. Robertson, Brenda Sue Harmon Robertson, Orel Bridges, Jr., and Ethel Sue Hoffpauir Bridges (collectively included in references to "Mills") purchased the subject tract. The contract stipulated that the sale was subject to recorded leases. The sale was recorded the following day.

Davis filed suit in the Federal District Court for the Western District of Louisiana on July 1, 1985. Jurisdiction was based on the presence of a civil rights claim, 28 U.S.C. Sec. 1343(a)(3) and diversity of citizenship, 28 U.S.C. Sec. 1332. Davis sought a declaratory judgment that the sheriff's sale of the subject tract was invalid because Davis had not been provided with direct notice of the seizure and impending sale, in violation of the Due Process Clause. Second, Davis sought equitable relief for the increased value of the subject tract resulting from a well Davis had drilled on land adjacent to the tract and within the same production unit. Third, Davis sought a declaratory judgment that its lease could not, as a matter of Louisiana state law, be extinguished by a judicial sale enforcing FNB's judgment. Finally, Davis asked for a declaratory judgment that the subject tract, again as a matter of Louisiana state law, was burdened by the lease because Davis recorded its lease prior to the sale of the property to Mills and the contract between Mills and FNB provides that the tract is subject to prior recorded leases, thereby estopping Mills from asserting otherwise. 1

B. The District Court Opinion

The district court, after a trial on the briefs and documentary evidence, denied relief to Davis on all counts. First, the district court held that although the sheriff's sale constituted state action, and although the lease was a protected property interest, deprivation of which is subject to the constraints of the Due Process Clause, constructive notice was reasonable in this case. Second, the district court found that Davis was not entitled to equitable relief for any enhancement in the value of the subject tract because Davis had a statutory remedy under section 30:5(C)(3) of the Louisiana Revised Statutes. Third, the district court found that as a matter of Louisiana law, Davis' lease was extinguished by the sale because the consent judgment obtained against Upton was properly considered a foreclosure by ordinary proceeding which extinguishes all subordinate obligations such as Davis' lease which was subsequent in time to the mortgage. Finally, the district court held that no concept of estoppel applied to prevent Mills from claiming that the subject tract was not burdened by the lease.

Davis filed a timely notice of appeal from the district court's judgment.

C. Claims on Appeal

Davis argues on appeal that the district court erred in concluding that constructive notice of the seizure and sale of the subject property satisfied the requirements of due process. 2 Davis contends that its identity was easily and readily ascertainable from the conveyance records of Lafayette Parish and that absent an effort to provide Davis with actual notice of the sheriff's sale of the subject tract, the sale was constitutionally flawed at least insofar as it extinguished Davis' interest in the subject tract. Mills and FNB advance three arguments on appeal. First, they argue that the foreclosure did not constitute action under color of state law. Second, they contend that even if there was state action, Davis was not "deprived" of a legally protected property interest because its lease was subordinate to the mortgage--thus, the property interest was simply extinguished by operation of a legal condition. Finally, they assert that even if Davis was deprived of a legally protected property interest, constructive notice was sufficient to satisfy the requirements of due process because Davis failed to avail itself of Louisiana's "request notice" provision, La.Rev.Stat.Ann. 13:3886 (West Supp.1988).

This case therefore presents three issues on appeal: first, whether the district court erred in finding state action, second, whether the district court erred in finding that Davis was deprived of a legally protected property interest and third, whether constructive notice satisfied the Due Process Clause. We address these issues in turn.

D. Standard of Review

This action was submitted to the district court for trial on briefs and documentary evidence. The district court's findings of fact, although based solely on documentary evidence, are subject to the clearly erroneous standard of review. Fed.R.Civ.P. 52(a) & advisory committee's note (1985). Accordingly, we may not reverse the district court's factfindings unless we are left, after reviewing the entire evidence, "with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). The district court's conclusions of law, however, are freely reviewable on appeal. See Inwood Laboratories v. Ives Laboratories, 456 U.S. 844, 855 n. 15, 102 S.Ct. 2182, 2189 n. 15, 72 L.Ed.2d 606 (1982).

II.

As a preliminary matter, it is useful to review the salient features of the Louisiana procedures that are at issue in this case. 3

Louisiana law provides two means of enforcing a mortgage. La.Code Civ.P. art. 3721 (West 1961 & Supp.1988). When a mortgage contains a confession of judgment, a mortgagee may foreclose on the mortgage through executory process which is an action in rem. Id. art. 2631. The...

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