Duhe v. Texaco, Inc.

• Citation: 779 So.2d 1070
• Decision Date: 07 February 2001
• Docket Number: No. 99-2002.,99-2002.
• Parties: John M. DUHE; Jr., et al., v. TEXACO, INC. and Texaco Exploration and Production Company.
• Court: Court of Appeal of Louisiana (US)

779 So.2d 1070

John M. DUHE; Jr., et al., v. TEXACO, INC. and Texaco Exploration and Production Company.

No. 99-2002.

Court of Appeal of Louisiana, Third Circuit.

February 7, 2001.

Writ Denied April 27, 2001.

COPYRIGHT MATERIAL OMITTED

William M. Hudson, III, Oats & Hudson, André F. Toce, Attorney at Law, Lafayette, LA, Attorney for Plaintiffs/Appellees.

David R. Dugas, Caffery, Oubre, Dugas & Campbell, Lafayette, LA, Charles S. McGowan, Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, Baton Rouge, LA, Robert L. Theriot, Attorney at Law, Robert Plumb, Jr., Joe B. Norman, Appeal Counsel, Liskow & Lewis, New Orleans, LA, Attorney for Defendants/Appellants-Texaco, Inc., et al.

Court composed of YELVERTON, GREMILLION, and PICKETT, Judges.

YELVERTON, J.

We have for review a judgment of April 1, 1999, of the District Court sitting in Iberia Parish certifying two consolidated actions as a class action under Louisiana Code of Civil Procedure Articles 591-597. The two defendants, Texaco, Inc., and Texaco Exploration and Production, Inc. (TEPI), appeal seeking reversal of the certification. We affirm.

The plaintiffs and proposed class representatives are John M. Duhe; Jr., Gladys Duhe Deutschle, Joseph Preston; Mary Lynn Brignol, Ellis "Bo" Ackal, Edna Ackal Brower, Lynn Moresi Broussard, Leta Mae Broussard, Paul G. Moresi, Jr., Betty Chauvin Roden, and Pierre Broussard.

They filed two actions. The first, which bears our docket No. 99-2002, was a declaratory action. The second, which bears our docket No. 99-2003, was a suit for cancellation of leases, damages for breach of contract, and attorneys' fees. The trial court consolidated them. The trial court has indicated that should the issue of damages be reached in the class action, the remedy of cancellation of leases will be bifurcated. What is before us is whether the trial court correctly certified "Class II—Self Dealing—Oil" as a class of Louisiana royalty payees of Texaco, Inc ., and its producing affiliate, TEPI. We will render one decision in both appeals under No. 99-2002 explaining our affirmation of this certification, and we are rendering a separate judgment today in Duhe v. Texaco, Inc., 1999-2003 (La.App. 3 Cir.2/7/01), 780 So.2d 1071.

The petitions claim that beginning March 23, 1988, Texaco and its producing affiliate, TEPI, underpaid oil royalties by valuing the amounts due the royalty owners on self-dealing, low-priced transfers of their oil from TEPI to Texaco Trading and Transportation, Inc. (TTTI), another wholly owned Texaco subsidiary. They claim that the calculation and payment of royalties was based on an internal transfer price, TTTI's posted price, instead of a better price, which they describe generally as market value, and that the TTTI posted price was less than market value. The suits are based on contract, and the class claims that Texaco breached its legal duties both under the leases and under the Louisiana Mineral Code, specifically Louisiana Revised Statute 31:122, which requires Texaco, as a mineral lessee, to operate the class members' properties as a reasonably prudent operator for their mutual benefit. Arguing that only the sale to true third-party purchasers can establish market value for royalty purposes, Wegman v. Central Transmission, Inc., 499 So.2d 436 (La.App. 2 Cir.1986), writ denied, 503 So.2d 478 (La.1987), the class representatives claim that it was reasonable for all class members to rely on Texaco to pay royalties in accordance with the legal obligations prescribed in the agreements, as governed by the Louisiana Mineral Code and related jurisprudence, i.e., payment based on fair market value in a true sale of oil to third party purchasers, and that Texaco consistently since 1988, violated its obligation to its royalty owners.

There is a stipulation in the record, following a motion to compel Texaco to produce documents, which reads as follows:

If produced, the documents requested and made subject to class representatives' motion to compel would establish that more than 50 percent of Texaco's private royalty interest owners, pursuant to the oil class definition as pled (believed by Texaco to be one-half more or less, of a total of approximately 14,000 royalty interest owners) were paid their royalty share by Texaco based upon a royalty payment code of "01". The 01 designation means to Texaco that the royalty was calculated based upon the transfer price between TTTI and TEPI for lease crude oil from March 23, 1988 to date. TEPI asserts that this transfer price between TTTI and TEPI is the sales price, and we, the Plaintiffs, disagree on that point.

Daniel Patrick Loughry, landman for Texaco, was recognized as an expert landman in relation to oil and gas interests. He testified that there were several royalty codes used by Texaco. Each established a price. The price that the "01" code established was paid to most royalty owners. In the ten years following 1988, Texaco had 6,000 or 7,000 productive private leases in Louisiana. Texaco paid some 13,000 people royalties over that period. All of the royalty owners who were coded "01" would get the TTTI posted price for every contract and every sale where the price basis was listed as TTTI's posted price. The coding was the same for ninety percent of those 13,000 royalty payees.

In short, the claims of the vast majority of the putative class is that over the time affected by this lawsuit, the royalty owners received the same price that TEPI received, and if TTTI's price that it paid TEPI was fair market value, the class representatives concede that Texaco will win the class action. If it was not fair market value, the royalty owners believe they will win the class action.

The class representatives also raise another violation of an obligation owed by Texaco. They claim that the monthly royalty statement to royalty owners, as required by the Louisiana Mineral Code, Louisiana Revised Statute 31:212.31, failed to contain the information required by law.

The record on appeal is large. Our record number 99-2002 alone consists of 65 volumes. All or most of 15 volumes contain testimony of the class representatives and experts called by both sides at the certification hearing. The rest are exhibits, including many mineral leases and division orders, and compilations of data and studies. The trial court, in ruling on objections to the admissibility of a lot of this evidence, most of which was put on by the Defendants, recognized that some of the evidence spilled over into the merits. Nevertheless, it is obvious from the numerous colloquies that took place between court and counsel during the trial of the certification hearing, that the trial court was at all times mindful of the factors dealing with certification. "In order to effectively make the Rule 23(b)(3) [our law's federal counterpart] inquiry, it is necessary for the court to consider what will have to be proved at trial and thus whether those matters can be presented by common proof or whether individual proof will be required." 7B CHARLES ALAN WRIGHT, ARTHUR R. MILLER, MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 1785, at 16 (1986 ed. Supp. 2000). The trial court undoubtedly considered this extraneous evidence as a means of getting a better understanding of the case and the manageability of the merits litigation if the class was certified. The certification has been thoroughly tried, and we have a complete record upon which to base our review of whether the trial court abused its discretion in deciding that this case is one in which the procedural device of a class action is appropriate.

The trial court defined the class as:

Every private (non-public) juridical person (including, but not limited to, natural persons, corporations, partnerships, trusts, limited liability corporations, joint ventures, estates, guardians, tutors, etc.):

(1) Who owned or owns royalty interest(s) in oil and condensate production from real property located in the State of Louisiana during any time from March 23, 1988, to date;

(2) Whose hydrocarbons from such properties were, and/or are, produced by Defendants, their wholly controlled entities, or affiliates, or others;

(3) Whose oil and/or condensate were, and/or are, marketed by Defendants through Texaco Trading and Transportation, Inc., (hereinafter referred to as "TTTI") and/or through any other entity wholly controlled by Defendants or their affiliates (4) Whose royalty for any such oil and/or condensate production from March 23, 1988, to date was calculated and/or paid by Defendants; and

(5) Whose royalty payments were reduced as the result of either: (i) prices set out in transactions between Defendants and entities wholly controlled by Defendants, or their affiliates, which prices were below "market value" (the highest prices obtainable for hydrocarbons of like kind, character, and quality, at the times of production with reasonable effort); and/or (ii) excessive charges or fees, or illicit profits retained, by Defendants, associated with transactions between them and their wholly controlled entities, or affiliates from March 23, 1988 to date.

ASSIGNMENTS OF ERROR

The Defendants assign four errors:

A. The trial court did not apply the proper law in relying upon the old standard for class certification instead of the new standard under the revised Louisiana Code of Civil Procedure articles on class actions.

B. The trial court violated the prohibition in Louisiana Code of Civil Procedure Article 592 by certifying a class after rendering a partial judgment on the merits of one of the common issues.

C. The certified class does not meet the requirements of revised Louisiana Code of Civil Procedure Article 591; in particular, it fails to meet the requirements of commonality, typicality, adequacy of representation, objectiveness of class definition, and superiority of a class procedure.

D. The trial court erred in certifying a class seeking relief under the...