Louisiana Land and Co. v. Pennzoil Exp., Civil Action No. 96-1779.
| Decision Date | 15 April 1997 |
| Docket Number | Civil Action No. 96-1779. |
| Citation | 962 F.Supp. 908 |
| Parties | LOUISIANA LAND AND EXPLORATION COMPANY v. PENNZOIL EXPLORATION AND PRODUCTION COMPANY |
| Court | U.S. District Court — Eastern District of Louisiana |
Charles Donald Marshall, Jr., Robert Timothy Lorio, Milling, Benson, Woodward, Hillyer, Pierson & Miller, New Orleans, LA, for plaintiff.
Joe B. Norman, Michael D. Rubenstein, Liskow & Lewis, New Orleans, LA, Frank P. Simoneaux, Stephen Craig Carleton, Simoneaux & Carleton, LLC, Baton Rouge, LA, for defendant.
ORDER AND REASON
Before this Court is the plaintiff's motion for summary judgment on the issue of interest on retained proceeds and on damages and attorney's fees sought by the defendant. The defendant has also moved for summary judgment on the issues of interest on the retained proceeds, as well as the plaintiff's deduction of working expenses, and improper calculation of payouts on the payout from the Dularge RA SU A Well.
For the following reasons, both the plaintiff's and defendant's motions for summary judgment on the issue of interest are DENIED. The plaintiff's motion for summary judgment on damages and attorney's fees sought by the defendant is GRANTED in reference to the defendant's working interest and DENIED in reference to the defendant's royalty interest. The defendant's motions for summary judgment on the plaintiff's deduction of working expenses and improper calculation of payouts on the payout from the Dularge RA SU A Well are DENIED.
Lake Gero Field, an oil and gas producing property, is located in Terrebonne Parish. Over the years, various parties have claimed ownership of portions of the field. Two of these parties, the State of Louisiana and LaTerra Company Inc. (succeeded by and hereinafter Fina), granted mineral leases on the property to Union Producing Company (succeeded by and hereinafter defendant Pennzoil). Fina awarded Pennzoil a mineral lease on their acreage in the Lake Gero Field in 1948. The State of Louisiana accorded Pennzoil one mineral lease on their property in the Lake Gero Field in 1949 and a second lease in 1970.
Pennzoil as lessee of the lands subleased their mineral interests to Placid. Placid later transferred its interest in these lands to Louisiana Land & Exploration Company (hereinafter LL & E). The terms of this arrangement allowed Pennzoil to retain a one sixteenth overriding royalty. A holder of an overriding royalty participates in the gross value of the production but does not bear any cost of the production. In comparison, a possessor of a working interest while sharing in the gross value of the production bears a proportionate share of the production cost.
In addition to the sublease, Pennzoil and LL & E entered into a farmout agreement on August 17, 1970. This farmout agreement gave LL & E the right to develop additional acreage in the Lake Gero Field. This arrangement awarded Pennzoil the option of retaining either a one-twelfth overriding interest or acquiring a twenty percent working interest in any well developed in the farmout acreage. Thus, two relationships bound LL & E and Pennzoil to each other.
LL & E established production in the Lake Gero Field in October 1970. Before commencing production, LL & E prepared a division order for each new well drilled. A division order is essentially a contract that confirms the division of interest among all parties who own the production obtained from a well and establishes the proportions in which each party is entitled to share proceeds from a well. LL & E drafted twenty-six such documents, (one for each new well drilled) The division orders contained a clause giving LL & E the right to withhold proceeds from oil production in case of a controversy over ownership of property covered by the lease and the farmout agreement. Additionally, a stipulation in these clauses relieved LL & E of an obligation to pay interest on any funds it retained.1
Considering the complexity of the situation described above, it is not surprising that a controversy concerning ownership of the Lake Gero Field, arose at approximately the same time LL & E began production. The ownership dispute involved possession of the land, as well as control of royalties, overriding royalties, and working interest on minerals located on the land. The conflict involved three groups, the State of Louisiana, the Harry Bourg Corporation, and Fina. The controversy affected LL & E's relationship with Pennzoil because two of the parties in the dispute had leased portions of the Lake Gero Field to Pennzoil.
The debate over title to portions of the Lake Gero Field continued for over two decades. During this time, purchasers of minerals produced in the Lake Gero field paid LL & E 100% of the sales proceeds leaving LL & E the responsibility to distribute the proceeds among the various royalty and interest owners. LL & E pursuant to the executed division orders retained proceeds from mineral productions attributed to the property in dispute.
Following settlements of the property disputes in 1991 and 1992, LL & E prepared a final and twenty-seventh division order. This division order indicated the proper ownership proportions of the Lake Gero field as well as correct overriding and working interest set forth in the settlement agreements. LL & E mailed this division order to Pennzoil on December 1, 1993. On October 28, 1994, Pennzoil returned the division order to LL & E. Pennzoil, however, had altered the division order by crossing out the interest provision. LL & E wrote Pennzoil on January 25, 1995, disputing Pennzoil's modification of the division order and their demand for interest on the retained proceeds. On September 5, 1995, Pennzoil in a letter repeated its claims for interest on the retained proceeds. Finally on September 11, 1995, LL & E mailed a check in the amount of $509,647.95 to Pennzoil. This check represented Pennzoil's share of retained proceeds minus its share of working expenses from production in acreage covered by the farmout agreement. The amount of the check did not include interest on retained proceeds and Pennzoil accepted the tendered amount under reservation of any right to interest it might have and the right to dispute the deduction of working expenses.
As a result of the dispute, LL & E filed the instant declaratory judgment action seeking determination of the amount it owes Pennzoil as well as damages for alleged over-payment to Pennzoil. Pennzoil has counterclaimed seeking interest on the amount of proceeds withheld by LL & E during the property dispute, reimbursement of incorrectly deducted working expenses, additional working-interest payments due to miscalculation of payout by LL & E on the Dularge RA SU A Well, double the amount of sums due as royalties and working interests and reasonable attorney's fees.
This instant matter involves motions for summary judgment by LL & E on the issue of interest and on damages and attorney's fees sought by Pennzoil. Pennzoil also moved for summary judgment on the issues of interest on the retained proceeds, LL & E's deduction of working expenses, and improper calculation of payouts on the payout from the Dularge RA. SU A Well.
Summary judgment will be granted only if the pleadings, depositions, answers to the interregatories, and admissions, together with affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. In this analysis, the Court must view the facts and inferences from the evidence in the light most favorable to the nonmoving party. Crescent Towing v. M/V Anax, 40 F.3d 741, 743 (5th Cir.1994). Once the moving party has demonstrated that there is no genuine issue of material fact, the burden shifts to the non-moving party to prove there is a genuine issue of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-587, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). The nonmoving party may not depend solely on denials contained in the pleadings, but must submit specific facts. Fed R.Civ.P. 56(e). Mere conclusory rebuttals by the nonmoving party will not defeat a motion for summary judgment. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), reh'g denied, 961 F.2d 215 (5th Cir.), cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992). Moreover if the factual context makes the nonmoving party's claim implausible, the party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue of material fact. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). This legal standard will be used in the following analysis.
The main issue between the two parties is whether or not LL & E owes Pennzoil interest on proceeds it retained during the title dispute over acreage in Lake Gero. Pennzoil answers the query in the affirmative while LL & E responses in the negative. Both parties moved for summary judgment on the issue and rely on complex legal arguments to support their viewpoint. Each party's reasons for summary judgment will now be examined.
LL & E's plea for summary judgment rests on three foundations. The first is that the division order is a contract and the parties are bound by it. Secondly LL & E puts forth the idea that Pennzoil's interest in the Lake Gero field did not arise as a mineral lessor and the mineral code and its provisions on interest are not applicable. Finally, LL & E avers the existence of a depositary relationship between itself and Pennzoil.
LL & E asserts that the division orders between it and Pennzoil are contracts and binding on the two parties....
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