Self v. BPX Operating Co.

• Docket Number: 22-30243
• Decision Date: 08 September 2023
• Citation: Self v. BPX Operating Co., 80 F.4th 632 (5th Cir. 2023)
• Parties: James SELF; Wilma Self, Plaintiffs—Appellants, v. BPX OPERATING COMPANY, Defendant—Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

80 F.4th 632

James SELF; Wilma Self, Plaintiffs—Appellants, v. BPX OPERATING COMPANY, Defendant—Appellee

No. 22-30243

United States Court of Appeals, Fifth Circuit

FILED September 8, 2023

Appeal from the United States District Court for the Western District of Louisiana, USDCNo. 5:19-CV-927, S. Maurice Hicks, Jr., U.S. District Judge

Andrew Martin, James Davis Powell, Davidson Summers, A.P.L.C., Shreveport, LA, Sally Dunlap Fleming, Law Office of Sally Dunlap Fleming, P.L.C., New Orleans, LA, Ashley M. Liuzza, Michael Gregory Stag, Esq., Attorneys, Stag Liuzza, L.L.C., New Orleans, LA, for Plaintiffs—Appellants.

April Leigh Rolen-Ogden, Brittan Jackson Bush, Michael H. Ishee, Gus E. Laggner, Esqs., Liskow & Lewis, Lafayette, LA, Paul Mark Adkins, Baton Rouge, LA, for Defendant—Appellee.

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.

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).

James and Wilma Self own unleased mineral interests in Louisiana that are part of a forced drilling unit.BPX is the operator.The Selfs allege on behalf of themselves and a named class that BPX has been improperly deducting post-production costs from their pro rata share of production and that this practice is improper per se.The district court granted BPX's motion to dismiss the Selfs' per se claims, holding that the quasi-contractual doctrine of negotiorum gestio provides a mechanism for BPX to properly deduct post-production costs.¹

The Selfs filed this action as purported representatives of a named class of unleased mineral owners whose interests are situated within forced drilling units formed by the Louisiana Office of Conservation and operated by BPX.Neither the Selfs nor the class members have 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).BPX 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.The Selfs alleged, consistent with district court authority at the time, that the practice of withholding the post-production costs from their pro rata share of production is improper per se.²SeeJohnson v. Chesapeake La., L.P., No. CV-16-1543, 2019 WL 1301985(W.D. La.Mar. 21, 2019), vacated on reconsideration, 2022 WL 989341.

BPX timely removed this action to the district court, based on both diversity and federal question jurisdiction.28 U.S.C. §§ 1332(a),1332(d).BPX sought dismissal of the Selfs' primary claim that BPX can never deduct post-production costs incurred in the sale of unleased mineral owners' pro rata shares of production.The district court granted BPX's motion to dismiss 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 Selfs' motion for leave to appeal from an interlocutory order.

II

We review a district court's dismissal of a complaint for failure to state a claim de novo.Gonzalez v. Blue Cross Blue Shield Ass'n, 62 F.4th 891, 898(5th Cir.2023).We accept all well-pleaded facts as true and view those facts in the light most favorable to the plaintiff.Id.

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 Selfs contend that "proceeds" of the sale here mean "gross proceeds."BPX countered initially that "proceeds" is ambiguous and should be interpreted to mean "net proceeds," after deduction of pro rata post-production costs.BPX 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 useful expenses."La. Civ. Code Ann. art. 2297(2023).³

The Selfs assert that BPX cannot be a gestor because it did not act "voluntarily and without authority"; it acted pursuant to a statutory duty.The Selfs also contend that BPX did not act exclusively to protect the unleased mineral owners' interests, but rather to protect its own interests.⁴If gestio principles are applicable, the Selfs assert, a factfinder would need to determine that BPX always acted for the plaintiffs' benefit in marketing unit production before BPX would be entitled to reimbursement under Article 2297.

BPX contends that Louisiana case law recognizes it as a gestor in all circumstances when dealing with unleased mineral owners, but the parties agree that no controlling case deals with the specific facts at hand.In Taylor v. Smith, the Louisiana Third Circuit Court of Appeal held that a cause of action under section 30:10(A)(3) of the Louisiana Revised Statutes should be construed together with the Civil Code's negotiorum gestio doctrine.619 So. 2d 881, 887(La. App.1993)("The statute gives the owner a cause of action in quasi-contract under LSA-C.C. art. 2292, et. seq., insofar as the operator, in selling the owner's proportionate share of the oil produced, is acting as a negotiorum gestor or manager of the owner's business in selling the oil produced.").The Louisiana Supreme Court cited Taylor in Wells, where it held that the relationship between an unleased mineral interest owner and operator is quasi-contractual.Wells, 89 So. 3d at 1149(citingTaylor, 619 So. 2d 881).Yet that case involved the proper prescriptive period for an action brought under section (A)(3) and did not directly...