Johnson v. Chesapeake La., L.P.

• Docket Number: 22-30302
• Decision Date: 27 November 2023
• Citation: Johnson v. Chesapeake La., L.P., 87 F.4th 305 (5th Cir. 2023)
• Parties: Allen JOHNSON; Linda Johnson; Donald A. Crosslin, Jr.; Mary Jo Gragg; Rodney M. Hudson; Clifton Layman; Alfred R. Meshell; Sherman R. Meshell; David E. Oliver; Tracy Oliver; Laura S. Pendleton; Andrew L. Piccolo; Karla S. Piccolo; Randall S. Rodgers; Freddie P. Spohrer; Tim G. Taylor; Charles R. Waldon; Rexford Galen White; James Shope; Donna Shope; Charlotte McCune; Jerry McCune, Plaintiffs—Appellants, v. CHESAPEAKE LOUISIANA, L.P.; Chesapeake Operating, L.L.C., Defendants—Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

87 F.4th 305

Allen JOHNSON; Linda Johnson; Donald A. Crosslin, Jr.; Mary Jo Gragg;Rodney M. Hudson; Clifton Layman; Alfred R. Meshell; Sherman R. Meshell;David E. Oliver; Tracy Oliver; Laura S. Pendleton; Andrew L. Piccolo;Karla S. Piccolo; Randall S. Rodgers; Freddie P. Spohrer; Tim G. Taylor;Charles R. Waldon; Rexford Galen White; James Shope; Donna Shope;Charlotte McCune; Jerry McCune, Plaintiffs—Appellants, v. CHESAPEAKE LOUISIANA, L.P.; Chesapeake Operating, L.L.C., Defendants—Appellees.

No. 22-30302

United States Court of Appeals, Fifth Circuit

FILED November 27, 2023

Appeal from the United States District Court for the Western District of Louisiana, USDCNo. 5:16-CV-1543, S. Maurice Hicks, Jr., U.S. District Judge

Andrew Martin, James Davis Powell, Davidson Summers, A.P.L.C., Shreveport, LA, Ashley M. Liuzza, Michael Gregory

Stag, Esq., Attorneys, Stag Liuzza, L.L.C., New Orleans, LA, for Plaintiffs—Appellants.

Nicole M. Duarte, Esq., Joshua A. Norris, Esq., Norris Firm, P.C., Houston, TX, Patrick Stephen Ottinger, Esq., Trial Attorney, Ottinger Hebert, L.L.C., Lafayette, LA, for Defendants—Appellees.

Marie Roach Yeates, Esq., Benjamin Henry Moss, Vinson & Elkins, L.L.P., Houston, TX, Michael A. Heidler, Vinson & Elkins, L.L.P., Austin, TX, for Amicus Curiae Louisiana Association of Business and Industry.

John Tucker Kalmbach, Esq., William Drew Burnham, Cook, Yancey, King & Galloway, A.P.L.C., Shreveport, LA, for Amici Curiae Louisiana Oil & Gas Association, Louisiana Mid-Continent Oil and Gas Association.

Before Dennis, Elrod, and Ho, Circuit Judges.

Jennifer Walker Elrod, Circuit Judge:

This case concerns the interplay between Louisiana's relatively new conservation laws and its deeply rooted negotiorum gestio doctrine.Because we cannot make a reliable Erie guess as to the applicability of Louisiana's negotiorum gestio doctrine, we CERTIFY a question to the Louisiana Supreme Court.¹

I

Louisiana oil and gas law authorizes the state Commissioner of Conservation to combine separate tracts of land and appoint a unit operator to extract the minerals.La. Stat. Ann. § 30:9(B)(2022);id.§ 30:10(A)(1)(2022).Where a tract is not subject to a lease, the unit operator can sell the landowner's share of production but must pay the landowner a pro rata share of the proceeds within one hundred eighty days of the sale.Id.§ 30:10(A)(3)(2022).

Linda and James Johnson own unleased mineral interests in Louisiana that are part of a forced drilling unit.Chesapeake is the operator.The Johnsons allege on behalf of themselves and a named class that Chesapeake has been improperly deducting post-production costs from their pro rata share of production and that this practice is improper per se.²The district court initially granted Plaintiffs' cross-motion for partial summary judgment.Chesapeake then filed a Motion for Reconsideration.That motion for reconsideration was granted, holding that the quasi-contractual doctrine of negotiorum gestio provides a mechanism for Chesapeake to properly deduct post-production costs.³

Plaintiffs filed this action as unleased mineral owners whose interests are situated within forced drilling units formed by the Louisiana Office of Conservation and operated by Chesapeake.Plaintiffs have not made separate arrangements to dispose of their shares of production, so the unit operator can sell the shares but must pay the owners a pro rata share of the proceeds within one hundred eighty days of the sale.La. Stat. Ann. § 30:10(A)(3)(2022).Chesapeake has been paying the pro rata share of production but has been withholding from that amount the pro rata post-production costs for transporting, gathering, marketing, treating, and compressing produced minerals, as well as amounts related to minimum volume commitments or capacity reservation fees.Plaintiffs alleged, that the practice of withholding the post-production costs from their pro rata share of production is improper per se.SeeJohnson v. Chesapeake La., L.P., No. CV-16-1543, 2019 WL 1301985(W.D. La.Mar. 21, 2019), vacated on reconsideration, 2022 WL 989341.

Chesapeake timely removed this action to the district court, based on diversity jurisdiction.28 U.S.C. §§ 1332(a).Chesapeake sought dismissal of the Plaintiffs' primary claim that Chesapeake can never deduct post-production costs incurred in the sale of unleased mineral owners' pro rata shares of production.The district court granted Chesapeake's motion for reconsideration and held that the Louisiana Civil Code doctrine of negotiorum gestio provides a mechanism for unit operators to be reimbursed for post-production costs not otherwise covered by specific statutes.La. Civ. Code Ann. art. 2292(2023).The district court certified its ruling for interlocutory appeal pursuant to 28 U.S.C. § 1292(b).This court granted the Plaintiffs' motion for leave to appeal from an interlocutory order.This court took up the appeal.

II

We review a district court's grant of summary judgment de novo.Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329(5th Cir.2014).Summary judgment is appropriate only when there is no genuine dispute of any material fact and the movant is entitled to judgment as a matter of law.Fed. R. Civ. P. 56(a)."The sole question is whether a 'reasonable jury drawing all inferences in favor of the nonmoving party could arrive at a verdict in that party's favor.' "Guzman v. Allstate Assurance Co., 18 F.4th 157, 160(5th Cir.2021)(quotingInt'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263(5th Cir.1991)).

On cross-motions for summary judgment, we review each party's motion independently.All evidence and inferences are viewed in the light most favorable to the nonmovant.Amerisure Inss. Co. v. Navigators Ins. Co., 611 F.3d 299, 304(5th Cir.2010).The district court's denial of a motion for reconsideration is reviewed for an abuse of discretion.SeeAustin v. Kroger Tex., L.P., 864 F.3d 326, 329(5th Cir.2017)."The trial court is free to consider and reverse its decision for any reason it deems sufficient."Id. at 336.

III

Louisiana is one of many states with forced pooling laws designed to prevent the waste of mineral resources.These laws provide mechanisms for sharing both the risks and benefits of production in the absence of a contract.TDX Energy, LLC v. Chesapeake Operating, Inc., 857 F.3d 253, 257(5th Cir.2017).Accordingly, the forced pooling law allows the recovery of certain costs:

In the event a drilling unit is formed by a pooling order by the commissioner and absent any agreement or contract between owners as provided in this Section, then the cost of development and operation of the pooled unit chargeable to the owners therein shall be determined and recovered as provided herein.

La. Stat. Ann. § 30:10(A)(2)(2022).

Louisiana law and the oil and gas industry in general recognize a distinction between production and post-production costs.Production costs end "at the wellhead when the minerals are reduced to possession.Post-production costs . . . include those related to taxes, transportation, dehydration, treating, compressing, and gathering."J. Fleet Oil & Gas Corp. v. Chesapeake La., L.P., No. CV-15-2461, 2018 WL 1463529, at *6(W.D. La.Mar. 22, 2018)(citation omitted).The provision addressing recovery of costs mentions only certain types of production costs: "drilling, testing, completing, equipping, and operating expenses," as well as a charge for supervision.SeeLa. Stat. Ann. § 30:10(A)(2)(b)(i)(2016).It is silent as to post-production costs.Most relevant here is La. Stat. Ann. § 30:10(A)(3), which addresses payment of production proceeds:

If there is included in any unit created by the commissioner of conservation one or more unleased interests for which the party or parties entitled to market production therefrom have not made arrangements to separately dispose of the share of such production attributable to such tract, and the unit operator proceeds with the sale of unit production, then the unit operator shall pay to such party or parties such tract's pro rata share of the proceeds of the sale of production within one hundred eighty days of such sale.

La. Stat. Ann. § 30:10(A)(3)(2022).

The Plaintiffs contend that "proceeds" of the sale here mean "gross proceeds."Chesapeake countered initially that "proceeds" is ambiguous and should be interpreted to mean "net proceeds," after deduction of pro rata post-production costs.Chesapeake later contended, however, that when section (A)(3) is properly harmonized with Louisiana's civil code regime, there is a legal mechanism to support the deductibility of post-production costs: the quasi-contractual regime of negotiorum gestio.

The Louisiana Supreme Court has held, and the parties agree, that the relationship between them is quasi-contractual.Wells v. Zadeck, 89 So. 3d 1145, 1149(La.2012)("A quasi-contractual relationship is created between the unit operator and the unleased mineral interest owner with whom the operator has not entered into contract.").The parties disagree, though, as to what type of quasi-contractual relationship they have.The Louisiana Code provides two non-exclusive examples that give rise to quasi-contractual obligations in the state: negotiorium gestio and enrichment without cause.La. Civ. Code Ann. art. 2292, 2298(2023); Louisiana is the only state that employs negotiorium gestio, and it has "deep roots" in the state.Under this doctrine, a proposed "gestor" must act 1) voluntarily and without authority, 2) to protect the interests of another, and 3) in the reasonable belief that the owner would approve of the action if made aware of the circumstances.La. Civ. Code Ann. art. 2292(2023).If negotiorum gestio applies, Louisiana Civil Code Article 2297 requires "[t]he owner whose affair has been managed [to] . . . fulfill the obligations that the manager has undertaken as a prudent administrator and to reimburse the manager for all necessary and...