Franklin v. Regions Bank

• Decision Date: 18 September 2020
• Docket Number: No. 19-30684,19-30684
• Parties: Elizabeth Fry FRANKLIN; Small Fry, L.L.C.; Cynthia Fry Peironnet; Cynthia F. Peironnet Family, L.L.C., Plaintiffs—Appellants, v. REGIONS BANK, Defendant—Appellee, Eleanor Bauginies De St. Marceaux, Plaintiff—Appellant, v. Regions Bank, Defendant—Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

976 F.3d 443

Elizabeth Fry FRANKLIN; Small Fry, L.L.C.; Cynthia Fry Peironnet; Cynthia F. Peironnet Family, L.L.C., Plaintiffs—Appellants,

v.REGIONS BANK, Defendant—Appellee,Eleanor Bauginies De St. Marceaux, Plaintiff—Appellant,

v.Regions Bank, Defendant—Appellee.

No. 19-30684

United States Court of Appeals, Fifth Circuit.

FILED September 18, 2020

Derek Tod Gilliland, Sorey Law Firm, Longview, TX, Christopher Robert Johnson, Nix, Patterson & Roach, L.L.P., Austin, TX, Karl Anthony Rupp, Nix Patterson, L.L.P., Dallas, TX, for Plaintiffs-Appellants.

Michael Beatty Donald, Esq., Nicole M. Duarte, Esq., Jones Walker, L.L.P., Houston, TX, Mark Aaron Cunningham, Jones Walker, L.L.P., New Orleans, LA, for Defendant-Appellee.

Before Stewart, Clement, and Costa, Circuit Judges.

Edith Brown Clement, Circuit Judge:

Plaintiffs contracted with Regions Bank for it to manage, as their agent, their mineral interests in a large tract of land. Regions later signed a lease extension with a third party, intending to extend the lease for only a small part of the property. But Regions was mistaken: the lease was unlimited, applying to the entire tract of land. This unintended, unlimited extension allegedly cost Plaintiffs tens of millions of dollars. They sued Regions, alleging breach of contract. The district court held that their suit was time-barred and dismissed it. We REVERSE and REMAND.

I.

Plaintiffs own part of an 1,800-plus-acre tract of land in Louisiana. All but one Plaintiff signed a contract with Regions Bank for it to "manage and supervise all said oil, gas, royalty and mineral interests, to do therewith what is usual and customary to do with property of the same kind and in the same locality," and "[t]o execute, acknowledge and deliver oil, gas and mineral leases containing such terms and provisions as [Regions] shall deem proper." The other Plaintiff—Ms. Marceaux—alleges that she "had an agreement with Regions such that, in exchange for a fee, Regions would provide advice on management of [her] mineral interest" in the property. In other words, Regions was a landman or mineral-rights manager for Plaintiffs.

In 2004, Regions executed a three-year mineral lease for the property with a third party, who then assigned the lease to Matador Resources Company. That lease had a Pugh Clause, under which the lease automatically extended if the lessee had a well that was producing in paying quantities, and a depth-severance clause, under which the lease would lapse after three years for all land 100 feet below the deepest depth drilled, even if the well was producing in paying quantities. Near the end of the lease term, only about 169 acres weren't producing in paying quantities. Because the lease was soon to lapse for these undeveloped acres, Regions signed a lease extension with Matador. But Regions apparently failed to read it. The extension wasn't just for the undeveloped acres; it was unlimited, applying to the entire property. This extension cast a cloud on Plaintiffs’ title and has allegedly cost them almost $30 million in lost lease bonuses and royalties.

Plaintiffs sued Matador in state court to attempt to rescind or reform the extension. The Louisiana Supreme Court upheld the extension, but found that the "failure to question the extension, to seek clarification of the acreage covered, or to even discuss the Deep Rights [i.e., the rights to undeveloped depths below producing wells] demonstrate[d] an inexcusable lack of ‘elementary prudence’ or simple diligence." Peironnet v. Matador Res. Co. , 144 So. 3d 791, 816 (La. 2013).

In 2016—nine years after the extension was signed and three years after the Louisiana Supreme Court's decision—Plaintiffs sued Regions in federal court. They allege that Regions's "inexcusable error" in signing the improperly drafted lease extension violated their contract. Regions moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that Plaintiffs’ claims were barred by state statute. See LA. STAT. § 6:1124 ("No implied fiduciary obligations"). The magistrate judge recommended denying the motion because that statute didn't apply and because Plaintiffs alleged that Regions breached specific contractual provisions.

Regions objected to the magistrate judge's report and recommendation. Regions argued that Plaintiffs’ claims sounded in tort, not contract, and were therefore barred by Louisiana's one-year statute of limitations for tort claims. See LA. CIV. CODE art. 3492. The magistrate judge then issued a supplemental report and recommendation. In it, the magistrate judge found that Plaintiffs’ claims were tort-based because Plaintiffs allege that Regions breached a duty of care; therefore, Louisiana's one-year statute of limitations applied. The district court, after de novo review, rejected Plaintiffs’ objections, adopted the supplemental report and recommendation, and dismissed Plaintiffs’ suit with prejudice. Plaintiffs appeal this dismissal.

II.

We review motions to dismiss de novo, accepting all well-pleaded facts as true and drawing all reasonable inferences in the nonmoving party's favor. Club Retro, L.L.C. v. Hilton , 568 F.3d 181, 194 (5th Cir. 2009). We don't, however, accept as true legal conclusions, conclusory statements, or " ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). To survive a Rule 12(b)(6) motion, a plaintiff must plead factual allegations that, if true, "raise a right to relief above the speculative level." Twombly , 550 U.S. at 555, 127 S.Ct. 1955.

III.

A.

In Louisiana, contract claims have a ten-year statute of limitations unless legislation states otherwise, LA. CIV. CODE art. 3499, and tort claims have a one-year limitations period, LA. CIV. CODE art. 3492.¹ The nature of the breached duty determines whether the claim sounds in tort or contract. Roger v. Dufrene , 613 So. 2d 947, 948 (La. 1993). Contract damages "flow from the breach of a special obligation contractually assumed by the obligor, whereas [tort damages] flow from the violation of a general duty owed to all persons." Smith v. Citadel Ins. Co. , 285 So. 3d 1062, 1067 (La. 2019) (quoting Thomas v. State Emps. Grp. Benefits Program , 934 So. 2d 753, 757 (La. App. 1 Cir. 2006) ). As a Louisiana treatise explains,

[f]ault is contractual when it causes a failure to perform an obligation that is conventional in origin, that is, an obligation created by the will of the parties, while fault is delictual when it causes the dereliction of one of those duties imposed upon a party regardless of his will, such as a duty that is the passive side of an obligation created by the law.

6 SAUL LITVINOFF & RONALD J. SCALISE JR., LOUISIANA CIVIL LAW TREATISE, LAW OF OBLIGATIONS § 5.2 (2d ed. 2018), cited favorably in Smith , 285 So. 3d at 1067.

Plaintiffs and Regions had a principal-mandatary relationship, which is equivalent to a common-law principal-agent relationship. Gerdes v. Estate of Cush , 953 F.2d 201, 204 (5th Cir. 1992). "A mandate is a contract by which a person, the principal, confers authority on another person, the mandatary, to transact one or more affairs for the principal." LA. CIV. CODE art. 2989. "The mandatary is bound to fulfill with prudence and diligence the mandate he has accepted. He is responsible to the principal for the loss that the principal sustains as a result of the mandatary's failure to perform." Id. art. 3001.

Plaintiffs argue that Regions breached the contracts by negligently failing to perform its contractual obligation. Because Regions breached the contracts by acting negligently, Plaintiffs claim that they can choose to sue in contract or in tort. Regions argues that, as a professional mandatary, it can be liable under a contract only if it (1) breached certain fiduciary duties, (2) failed to take any action whatsoever in fulfilling its contractual obligations, or (3) promised a particular result yet failed to deliver on that promise; otherwise, Plaintiffs’ suit sounds in tort. Regions claims that these contingencies don't apply, so Plaintiffs’ suit sounds in tort and, therefore, is time-barred. No one disputes that, if this is a tort suit, it's time-barred. The issue, therefore, is whether Plaintiffs can choose to sue Regions in contract. They can.

For most contracts, a party can be liable for breaching a contract if it negligently performs its contractual duties. "An obligor is liable for the damages caused by his failure to perform a conventional obligation. A failure to perform results from nonperformance, defective performance, or delay in performance." LA. CIV. CODE art. 1994. When such negligent performance causes damages, the injured party "may have two remedies, a suit in contract, or an action in tort, and ... may elect to recover his damages in either of the two actions." Fed. Ins. Co. v. Ins. Co. of N. Am. , 262 La. 509, 263 So. 2d 871, 872 (1972). The applicable limitations period therefore depends on the nature of the pleadings. Id. Indeed, Louisiana courts have long honored a plaintiff's choice to sue in contract when alleging that a defendant negligently performed his contractual duties. See, e.g. , Lafleur v. Brown , 223 La. 976, 67 So. 2d 556 (1953) ; Am. Heating & Plumbing Co. v. W. End Country Club , 171 La. 482, 131 So. 466 (1930) ; Wilson v. Two SD, LLC , 186 So. 3d 103 (La. App. 1 Cir. 2015) ; Cameron v. Bruce , 981 So. 2d 204 (La. App. 2 Cir. 2008) ; La. Alligator Wholesale, Inc. v. Prairie Cajun Seafood Wholesale Distribs., Inc. , 981 So. 2d 929 (La. App. 3 Cir. 2008).

Plaintiffs allege that Regions negligently signed a lease on their behalf without reading it. This, Plaintiffs claim, was a breach of Regions's contractual obligation to, among other things, "do what is usual and customary" with Plaintiffs’ mineral interests and to execute forms that Regions "shall...