Union Pacific Resrc v. Chesapeake Operating

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 99-30070

UNION PACIFIC RESOURCES COMPANY; AMOCO
PRODUCTION COMPANY,

Plaintiffs-Appellants,

versus

ARTHUR NEIL SMITH; et al,

Defendants,

CHESAPEAKE OPERATING COMPANY,

Defendant-Appellee.

- - - - - - - - - -
Appeal from the United States District Court
for the Middle District of Louisiana
(96-CV-7347)
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November 5, 1999

Before REYNALDO G. GARZA, JOLLY, and WIENER, Circuit Judges.

WIENER, Circuit Judge.*

In this diversity jurisdiction case, Plaintiffs-Appellants

Union Pacific Resources Company (“UPR”) and Amoco Production

Company (“Amoco”) were successful in obtaining judicial

cancellation of an oil and gas lease that had been granted by their

lessor, Defendant Arthur Neil Smith (“Lessor”) to Chesapeake

Operating Company (“Chesapeake”) subsequent to his grant of an oil

and gas lease to Amoco. Before us today is the collateral issue of

attorney’s fees and damages for failure timely to cause the

*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
subsequent lease to be canceled from the public records.

Specifically, Amoco and UPR appeal the district court’s denial of

their partial summary judgment motion for attorney’s fees and

damages purported to be recoverable from Chesapeake pursuant to

provisions of Title 31 of the Louisiana Revised Statutes of 1950

(the “Mineral Code”). Chesapeake asserted in the district court

that Amoco and UPR do not have standing to seek attorney’s fees

under the pertinent provisions of the Mineral Code; and,

alternatively, that even if Amoco and UPR were found to have

standing, they are not entitled to recovery. For the reasons set

forth below, we affirm the district court’s denial of attorney’s

fees to Amoco and UPR.

I.

Facts and Proceedings

Lessor granted a mineral lease (the Amoco Lease) to Amoco on

March 17, 1996, covering property in Pointe Coupée Parish,

Louisiana.1 That lease was filed for record on April 3, 1996.

Also on April 3, Lessor was approached by a landman who was

seeking a mineral lease for Chesapeake covering the same property

as that covered by the Amoco Lease. He was successful in obtaining

such a lease (the “Chesapeake Lease”), which was filed for record

the next day, April 4, 1996. Nothing in the Chesapeake Lease

indicates that it is a “top lease” or was granted “subject to” the

previously-granted and prior-recorded Amoco Lease.

1
Amoco assigned an undivided one-half interest in the
Amoco Lease to UPR on September 23, 1996.

2
 A few months later, Chesapeake made a demand on Amoco, under

§ 206 of the Mineral Code, to release its leasehold interest in the

Lessor’s property and have the inscription of the Amoco Lease erased

from the public records. Amoco countered with a like demand on

Chesapeake. Neither party complied within the thirty-day period

prescribed in § 602A of the Mineral Code, or for that matter within

the ninety-day period prescribed in § 602B.2

Amoco and UPR sued the Lessor3 and Chesapeake in federal

district court, seeking (1) a declaratory judgment that the Amoco

Lease was valid, and (2) damages suffered by Amoco and UPR from the

subsequent recordation of the Chesapeake Lease. Chesapeake

answered, denying Amoco and UPR’s allegations and counterclaiming

against Amoco. In its counterclaim, Chesapeake sought a declaratory

judgment that its lease was valid and that the prior-recorded Amoco

Lease was null and void.4 After both Chesapeake and Amoco and UPR

2
§ 206. Obligation of owner of expired mineral right to
furnish recordable act evidencing extinction or
expiration of right; mineral lease
A. Except as provided in Paragraph B of this Article, when a
mineral right is extinguished by the accrual of liberative
prescription, expiration of its term, or otherwise, the former
owner shall, within thirty days after written demand by the
person in whose favor the right has been extinguished or
terminated, furnish him with a recordable act evidencing the
extinction or expiration of the right.
B. When a mineral lease is extinguished prior to the expiration
of its primary term, the former lessee shall, within ninety days
after the extinguishment, record an act evidencing the extinction
or expiration of the lease in the official records of all
parishes wherein the lease is recorded.
3
Within weeks after filing its suit, Amoco dismissed the
Lessor as a co-defendant.
4
Chesapeake also filed and later amended a third-party
demand against the Lessor for damages and reimbursement of its
lease bonus in the event that the Amoco Lease should be held

3
filed motions for partial summary judgment on the issue of the

validity of their respective leases and the invalidity of the lease

of party opposite, the district court ruled in favor of Amoco and

UPR, holding the Amoco Lease valid and the Chesapeake Lease null and

void. That ruling is not before us on appeal.

The instant appeal by Amoco and UPR challenges only the

district court’s denial of their claims for attorney’s fees and

damages asserted to result from Chesapeake’s recordation of its

lease and refusal to cancel it from the public records in response

to Amoco’s August 15, 1996 written demand to do so. The district

court had the attorney’s fees’ issue briefed and conducted oral

argument, then denied Amoco and UPR’s motion and dismissed their

claim for attorney’s fees. The court’s oral reason for its denial

and dismissal was that Amoco and UPR lacked standing to recover

attorney’s fees under the provisions § 206 of the Mineral Code. On

appeal, Amoco and UPR seek reversal of the district court’s ruling

on standing and a judgment declaring their entitlement to recover

attorney’s fees under § 206.

II.

Analysis

As noted, the district court rejected Amoco and UPR’s

application for attorney’s fees on the basis of what the court

labeled as “standing,” referring at least implicitly to the

proposition that those parties, as mineral lessees, have no right

of action under subpart A or B of § 206 of the Mineral Code. For

valid. This issue is not before us on appeal.

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the most expeditious and, we believe, most principled disposition

of the instant appeal, however, we need not address that point;

neither need we address Chesapeake’s procedural contentions that

Amoco and UPR failed to comply with the Federal Rules of Civil

Procedure and the Local Rules of the District Court for the Middle

District of Louisiana, in the manner and timing of those parties’

application for attorney’s fees under §§ 206 and 207 of the Mineral

Code. Rather, we assume without granting that (1) Chesapeake and

UPR, as lessees under a mineral lease, are included among the class

of mineral rights owners who are entitled to assert claims for

attorney’s fees and damages under §§ 206 and 207,5 and (2) Amoco and

UPR are not procedurally barred from seeking attorney’s fees under

§§ 206 and 207 of the Mineral Code for their alleged failure to

comply with the provisions of the Federal Rules of Civil Procedure

or the Local Rules of the Middle District of Louisiana governing

application for attorney’s fees. Next, we take note of the

undisputed facts that (1) neither Amoco nor UPR made written demand

5
Section 16 of the Mineral Code expressly recognizes that
the term “mineral rights” includes the mineral lease as well as
the mineral servitude and the mineral royalty. More
specifically, the official Comment to § 206 declares that, in the
context of this section, “the term ‘mineral rights’ used is
inclusive of all forms of mineral rights, including mineral
leases....” There can be no doubt, then, that subsection A of §
206 applies to extinction of, inter alia, mineral leases. The
assumption we make arguendo today is that extinction of the
Chesapeake lease was in favor of Amoco and UPR, as lessees under
the competing Amoco lease, giving them “standing” under § 206A.
Thus, the arguments that the term “mineral right” in subsection A
of § 206 includes, inter alia, the mineral lease, and that the
mineral lessee who succeeds in litigation brought to have a
competing mineral lease declared void is a “person” in whose
favor the lease is terminated, are neither frivolous nor
illogical; we just do not decide those questions but assume the
answers arguendo.

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on Chesapeake to furnish a recordable act evidencing the extinction

of the Chesapeake Lease at any time after the district court

rendered the partial summary judgment that extinguished the

Chesapeake Lease, and (2) within less than ninety days following the

granting of that summary judgment by the district court, Chesapeake

took the necessary action to evidence the extinction of its lease

in the appropriate public records. Thus, even assuming as we have

that Amoco and UPR are persons “in whose favor the [mineral] right

has been extinguished” for purposes of subsection A of § 206, they

still cannot recover attorney’s fees or damages from Chesapeake

under subsection A. They made no written demand for a recordable

act evidencing the extinction of the Chesapeake Lease “when,” i.e.,

after, the district court granted Amoco and UPR’s partial summary

judgment and before Chesapeake recorded an act evidencing extinction

of its lease. Neither can Amoco and UPR recover under subsection

B of § 206 because Chesapeake filed an act evidencing the extinction

of its lease within less than ninety days following the judgment

that extinguished it.

Amoco and UPR argue that they are nevertheless entitled to

recover damages and attorney’s fees under subsection A of § 206 by

virtue of having furnished to Chesapeake a subsection A thirty-day

demand on August 15, 1996. The gravamen of Amoco and UPR’s argument

is that because the judgment of the district court rendered the

Chesapeake Lease null ab initio, the August 15, 1996 demand meets

the requirements of § 206A. In other words, because the district

court did not terminate the Chesapeake Lease but extinguished it as

a nullity, without legal effects whatsoever, as of the date of its

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confection, the August 15, 1996 demand was not premature even though

it predated not just the judgment that extinguished the Chesapeake

Lease but even the filing of the suit that eventually produced that

judgment.

This argument defies both logic and the plain wording of the

statute, and if accepted would produce absurd results —— a

consequence that would invalidate such a statutory construction

under any system. The logical flaw in Amoco and UPR’s position lies

in their failure to distinguish temporally between the judicial

extinction of the Chesapeake Lease itself and the retroactive

effects of the extinction of that lease. The Lease was not an

absolute nullity, void on its face; absent mutual cancellation by

the parties, the Chesapeake Lease, like any other bilateral contract

in Louisiana, could only be extinguished by a final and executory

judgment of a competent court. Even though the effects of

extinction of the mineral lease relate back to its confection and

recordation, the extinction qua extinction does not. Consequently,

the August 15, 1996 thirty-day demand was premature.

A fair reading of the plain wording of subsection A comports

with that logic: “[W]hen a mineral right is extinguished [not

“extinct”]...the former owner shall, within thirty days after

written demand by the person in whose favor the right has been

extinguished...furnish [such person] with a recordable act

evidencing the extinction...of the right” (emphasis added).

Clearly, (1) the thirty days commences with the written demand, (2)

the demand must be furnished by or on behalf of the person in whose

favor the subject mineral right “has been” extinguished, and (3) the

7
process commences only “when,” i.e., after the lease is

extinguished. We can read these words in no way other than to

require that the extinction of the mineral right in question precede

the furnishing of the thirty-day demand. First, the introductory

“when” clause determines the time that the provision becomes

effective —— “when,” not “before” the lease is extinguished.

Second, this reading is reinforced by the use of the past tense of

the verb, to extinguish (“has been extinguished”).

Finally, an exercise in reductio ad absurdam confirms our

determination that the thirty-day demand must follow the extinction

of the mineral right. For, if the interpretation advocated by Amoco

and UPR were to prevail, the grantor of any mineral right could

furnish a §206A thirty-day demand to his grantee the day after that

mineral right is created and thereby preserve a right to recover

attorney’s fees years later, following any termination or extinction

of that mineral right, even if the grantee were to furnish the

recordable act evidencing the extinction on the very day of the

judgment of extinction. Such a result is obviously not intended.

The same analysis holds true for subsection B of §206: No fair

reading of the statute could abide the imposition of costs and

attorney’s fees on a mineral lessee whose lease is judicially

extinguished years after its confection on the (il)logic that the

effects of the judgment of extinction are retroactive, ergo the

recording of an act evidencing that extinction more than ninety days

after the original confection of the lease is untimely and thus

exposes the mineral lessee to damages and attorney’s fees under the

statute.

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 III.

Conclusion

Even when we assume without granting that Amoco and UPR, as

mineral lessees of the same property that was leased to Chesapeake,

are “person(s) in whose favor” the Chesapeake Lease has been

extinguished for purposes of §§ 206 and 207 of the Mineral Code,

Amoco and UPR cannot recover under the instant facts. The

Chesapeake Lease was extinguished by the grant of a judgment of

nullity, and it is only after such judgment was granted that a

thirty-day demand under § 206 could be furnished to the former

lessee. The date of extinguishment is also the time within ninety

days of which an act evidencing extinction of the mineral lease must

be recorded pursuant to subsection B, of § 206. In either case, the

fact that the effects of the judgment of extinction are retroactive

is irrelevant. Here, no subsection A thirty-day demand was

furnished after the Chesapeake Lease had been extinguished, so § 207

could not provide relief for a § 206A violation. As for § 206B, an

act evidencing the extinction of that lease was filed in the

appropriate records of Pointe Coupée Parish within less than ninety

days following the judgment of extinction so no recovery could be

had under that subsection either. Consequently, albeit for

different reasons, the judgment of the district court rejecting the

application of Amoco and UPR for damages and attorney’s fees is, in

all respects,

AFFIRMED.

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