Header graphic for print

Energy & the Law

Louisiana Mineral Code Article 122 Revisited

Posted in Lease Disputes
Allen Toussaint RIP

Allen Toussaint RIP

Co-author Brooke Sizer

Creativity abounds: Your 16-year old “explaining” the empty Southern Comfort bottle and the roach clip; President Obama justifying his rejection of Keystone. The Louisiana Supreme Court isn’t much of a supporter, at least in statutory construction. Today we revisit McCarthy v. Evolution Petroleum Corp.  As we reported, the court of appeal had authorized causes of action under Mineral Code Article 122 for fraud by silence and fraud by affirmative misrepresentation.  The Supreme Court reversed; these causes of action may only be obtained contractually and not by “creative interpretations of Article 122”.

Article 122:

A mineral lessee is not under a fiduciary obligation to his lessor, but he is bound to perform the contract in good faith and to develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and his lessor. Parties may stipulate what shall constitute reasonably prudent conduct on the part of the lessee.

The Supreme Court did not agree that the obligation to develop and operate the property “for the mutual benefit of himself and his lessor,” established a cause of action for “fraud by silence”, requiring disclosure of information in connection with Evolution’s purchase of mineral interests from its lessors.

Duties under Article 122

Four duties are derived from Article 122:

  • develop known mineral producing formations
  • Explore and test all portions of the leased premises after discovery of minerals in paying quantities;
  • Protect the leased property against drainage by wells located on neighboring property; and
  • Produce and market minerals discovered and capable of production in paying quantities.

All require the lessee to operate in the manner of a reasonable, prudent operator.

The court avoided “hide-and-go-seek” in statutory construction.  The true meaning of the statute won’t be hidden until found by a creative plaintiff. Duties requiring the disclosure of information will not be read into Article 122, said the court, especially because the article itself allows for contractual arrangements. A concurring opinion reasoned, “Courts should take care not to go beyond the plain meaning of the provisions of the Code where the meanings are clear and unambiguous and do not lead to absurd consequences.”

The causes of action approved by the court of appeals would be fine if they had been supplied by an agreement between the parties. It did not help the plaintiffs that an allegation of an inadequate price in a mineral sale is not actionable (that “lesion” thing we discussed in the first post). Nor was it helpful that the claims arose out of the purchase of mineral interests and not operations. Nor did it help that the article relieves the lessee of fiduciary obligations.


  • Lessor: If you want reporting, disclosure or other duties beyond those required by Article 122, negotiate them into your lease.
  • Lessee: You are off the hook for withholding information from your lessor, at least in this situation.

A musical interlude

 Allen Toussaint has nothing to do with the subject but much to do with Louisiana’s musical heritage.

Here is one he wrote and produced.

And another one that puts the New Orleans rhythm into a song you’ve heard a hundred times.

Your MSA is in Place – Now What?

Posted in Contract Disputes, operations

controlAre you an operator who hires contractors on location, … a contractor who hires subcontractors, … the party to be indemnified for injuries to the other party’s employees? This post is for you.

Salas v. Allen Keller Company One, LLC, is not about master service agreements, but it is instructive. Want to avoid responsibility for your sub’s employees? Don’t assert control over them.  Think Jason Garrett and his Cowboys, … John Boehner and the Freedom Caucus.

Mr. Saurez was killed while working for his employer, subcontractor C&B, on a highway construction project.  C&B and contractor AKC had a written construction subcontract in which C&B was to perform concrete work. His widow sued AKC for negligence.

The sub’s obligations – looks like an MSA

C&B represented and agreed:

  • It was capable and experienced in the construction,
  • It would supply its own materials, labor, tools and equipment,
  • It would procure its own insurance,
  • It would assume responsibility for claims arising out of death to injuries to persons or damages to property sustained in connection with C&B’s performance of the contract, and
  • It would take all reasonable safety precautions and comply with applicable laws.

C&B was to perform traffic control.  On the day of the accident Suarez was performing traffic control duties.

Did the contractor owe a duty?

Here is Texas law on a contractor’s duty to a sub’s employees:

  • Ordinarily, there is no duty to insure that an independent contractor performs its work safely.
  • A limited duty arises if the contractor retains some control over the manner in which the independent contractor performs its work. The contractor’s duty of care to the sub’s employee is commensurate with the control it retains over the independent contractor’s work.
  • There must be a nexus between the contractor’s retained control and the activity that caused the plaintiff’s injury.
  • The key is the actual exercise of control.
  • There must be more than a general right to order the work stopped or resumed to inspect progress, or make suggestions and recommendation which need not necessarily be followed, or prescribe alterations and deviations.
  • There must be such a retention of a right of supervision that the sub-contractor is not entirely free to do the work in its own way.

Factors that matter

AKC did not have a contractual right to control C&B’s performance but could have actually exercised such control in a manner that would give rise to a legal duty to C&B’s employees.

  • On-site orders or instructions on the means or methods to carry out a work order are important.
  • TxDOT’s inspections and directions was no evidence that AKC retained supervisory control over operations of the sub.
  • AKC never instructed the C&B crew on how to actually move and set out cones and signs.
  • There was no nexus between any exercise and control and Salas’ conduct which caused his injuries.

Salas Simplified

  • You can tell the sub what you want; don’t tell him how to do it.
  • Suggestions ≠ instructions.
  • Make sure your field personnel is mindful of the difference.

A musical interlude.

Hydrocarbon Exposure Dismissal Affirmed

Posted in operations, Pollution

dodgeballYou might recall previous entries discussing Parr v. Aruba (here is one) – a suit for personal injuries from oilfield pollution (and a $2.9MM verdict for the plaintiffs). Not all similar suits have the same result.

You could liken Cerny v. Marathon Oil and Plains Exploration & Production to a game of legal dodgeball.  The “ball ” that the plaintiffs could not avoid  was causation, thanks to Merrell Dow Pharmaceuticals, Inc. v. Havner. 

Gray Reed attorneys Jim Ormiston and Mitch Ackal represented Plains. The summary judgment at the trial court was upheld by the court of appeal.

The claims  

The petition alleged, among other claims: 

  • continuous release of “ … strong odors and noxious chemicals into the environment, including the plaintiffs’ property, causing injury and harm to the plaintiffs’ property and to their persons … ” from Marathon wells and Plains facilities, and
  • health problems, including headaches, rashes, chest pain, “strange nerve sensations,” high blood pressure, nausea, difficulty breathing, nosebleeds, anxiety and depression.

The causes of action were private nuisance, negligence, and negligence per se.

The problem for the plaintiffs

To dodge Havner, the plaintiffs had to satisfy these requirements:

  • Prove with scientifically reliable expert testimony that their exposure to the defendant’s product more than doubled the plaintiff’s risk of contracting the disease.
  • Where multiple sources of exposure exist, prove substantial factor causation. “Some” or “any” exposure won’t get it done.
  • There must be defendant-specific evidence relating to the approximate dose to which the plaintiff was exposed, along with evidence that the dose was a substantial factor in causing the disease.
  • Present reliable epidemiological and scientific evidence.

Ducking the problem

In an effort to satisfy the requirements, the plaintiffs:

  • Disclaimed specific diseases, instead alleging symptoms,
  • Disclaimed “personal injury damages” (which would require expert testimony under Havner),
  • Sought recovery for “discomfort”, rather than disease,
  • Submitted affidavits and reports from an air quality expert, a forensic meteorologist, a toxicologist, the Cernys themselves, and a lay witness who collected air samples at the Cernys’ home and at a Plains facility several miles away.

The result

When considering the following conclusions, think “causation”:

  • The trial court struck virtually all of the plaintiffs’ evidence, expert and otherwise.  Thus, the plaintiffs had no proof. The evidence was speculative, hearsay, unreliable, and unqualified lay opinions.
  • The plaintiffs failed to establish that the pollution came from the defendants’ operations and facilities, and not from dozens of other oilfield operations in the area.
  • The court did not accept plaintiffs’ assertion that claims for symptoms, rather than disease, sidestepped Havner. It was still a toxic tort case.
  • There was no direct, scientifically reliable proof of actual causation.
  • Other potential causes of the Cernys’ illnesses were not addressed.
  • The Cernys had plenty of symptoms before the events they sued on.

Free advice

I submit that the plaintiffs had the wrong kind of expert.

Oh My! Oklahoma Court Allows Earthquake Case to Proceed

Posted in Hydraulic Fracturing, operations

lion eatingWhat should we make of the Oklahoma Supreme Court’s order sending a suit alleging injuries from an earthquake back to the trial court?  Did the court unleash the lions, tigers and bears of the litigation world … or not? At this point, the answer is, not much for an injection well operator to worry about now.  This was a procedural ruling.

Faced with a motion to dismiss, the court concluded that the district court, and not the Oklahoma Corporation Commission, has exclusive jurisdiction over the claims.

Ladra v. New Dominion is a private tort action in which a homeowner seeks damages for personal injuries and property damages she alleges were proximately caused by wastewater injection wells in Lincoln County, Oklahoma.

Since 2009 Oklahoma has experienced a drastic increase in the frequency and severity of earthquakes.  The one at issue for Ms. Ladra was 5.0 in magnitude.  Her house shook, the chimney fell into the living room, rocks fell and caused her significant injury to her knees and legs, says the petition.

In Oklahoma procedure, a motion to dismiss is generally viewed with disfavor. The court is to accept as true all of the plaintiff’s factual allegations, with all reasonable inferences to be drawn from them. The moving party bears the burden to show the legal insufficiency of the petition.

What the ruling actually did

The court’s conclusion was that the OCC’s jurisdiction is limited solely to the resolution of public rights, and the agency has no authority to hear and determine disputes between private parties in which the public interest is not involved.  The OCC has no authority to entertain a suit for damages. Private tort actions are exclusively within the jurisdiction of district courts.  By the same token, an OCC order approving an operation (such as a disposal well permit) does not immunize an operator from lawsuits in the district courts.


  • This ruling has nothing to do with the substance of the plaintiff’s claims. It’s about jurisdiction.
  • Don’t try to predict the outcome. There is lots scientific of evidence to develop, and there is the question of how an Oklahoma jury might balance the value of hydraulic fracturing against health and safety of residents living close to injection wells.
  • Operators are fond of saying that the typical earthquake in the vicinity of wastewater injection wells is minimal – 2.0 or 3.0 on the Richter scale. But this one is alleged to have been 5.0, which in the world of seismology exponentially more severe than a 2.0 or 3.0.
  • 2.0 to 3.9 earthquake damage ranges from felt slightly by some people, no damage, to noticeable shaking of interior objects (2.0 o 2.9); generally none to minimal damages, some objects may fall off shelves (4.0 to 4.9).
  • 5.0 to 5.9: Can cause damage of varying severity to poorly constructed buildings; none to slight damage to all other buildings. Felt by everyone.
  • Despite the breathless anticipation from radical environmental groups, this ruling does not present the demise of hydraulic fracturing.

In the end, it could be a good day for someone.

The Louisiana Right of Passage Discussed

Posted in Land Titles, Title Issues

Co-author Brooke Sizer

Spoiler alert: Don’t expect a post about a weekend of Mardi Gras debauchery.

The owner of a landlocked tract can demand a right of passage over his neighbor’s property to the nearest public road. Does the law require the passage to be on the shortest route? No, says Phillips Energy Partners, LLC v. Milton Crow Ltd. Partnership, et al.

Phillips’ dilemma

Phillips owned a landlocked 160-acre tract. To the west is a Crow and Livingstone tract.  Chesapeake, in order to access wells on the two properties, built a road across the C-L property and on to the Phillips property, connecting both properties to a public road. Phillips dug several ponds on its property in order to sell water for hydraulic fracturing and used the road to access the property until C-L objected.  Landowners to the east allowed Phillips to construct a temporary road to finish the project, but refused to permit a permanent road through their property.

Phillips sued C-L to obtain a right of passage.  Three routes were proposed.

  1. Route One, to the east,
  2. Route Two, on C–L’s property to the west,
  3. Route Three, the Chesapeake road.

Routes One and Two would require construction of a roadway.  Phillips’ first choice was Route Three. Landowners to the east opposed Route One. C–L, opposed Routes Two and Three.

What Does  the Civil Code Say?

Art. 689.  Enclosed estate; right of passage

The owner of an estate that has no access to a public road … may claim a right of passage over neighboring property to the nearest public road … .  He is bound to compensate his neighbor for the right of passage acquired and to indemnify his neighbor for the damage he may occasion.

Art. 692.  Location of passage 

The passage generally shall be taken along the shortest route from the enclosed estate to the public road … at the location least injurious to the intervening lands.

Note “generally” in Art 692. That word indicates exceptions, two of which are recognized by jurisprudence:

  1. The shortest route is covered by water or is otherwise not accessible year-round.
  2. The costs associated with crossing the estate which is the shortest distance are so exceptional that from a practical standpoint it is economically unfeasible.

Testimony was presented at trial regarding the feasibility of Route One:

  • It was frequently muddy and impassable
  • It would be located near a where a deer feeder loaded with 150 pounds of corn was tipped over by the water
  • It would require a federal wetland mitigation permit
  • It would pass through a residential subdivision, and would not be well received by the residents
  • A road use permit could be used by the police jury
  • It was typically inundated with water and rarely dried out.

The trial court found that Route One presented environmental factors that resulted in the need for an exception. The court of appeal agreed.  Likewise, Route Two could result in safety and maintenance issues.  Route Three was the least injurious.

It’s Not all Good News for Phillips

Because Route Three was a permissible right of passage, Phillips was bound to indemnify C-L for damage the road may occasion.  The burden was on C-L – the servient estate – to prove the amount of damage resulting from the servitude.

For our musical interlude there will be no cute John Denver number. Let’s talk swampy and muddy Louisiana funk and second line.

You have the R&B and the Jazz.  Take your pick. no lyrics necessary.

Another Chesapeake Post-Production Deduction Case

Posted in Lease Disputes

hide the ballThe result was like others we’ve seen. Lessors Win. These wells are in Johnson and Tarrant County, Texas. Lessee Chesapeake Exploration sells to affiliate Chesapeake Marketing through affiliate-operator Chesapeake Operating. Plaintiffs sued Exploration and Operating for underpayments of royalty and overrides.

The Takeways

  • This decision demonstrates the reason for special royalty clauses addressing sales to an affiliate of the lessee: To prevent the lessee from monkeying around with the sales mechanism, and therefore the price, so that the affiliate makes money that would otherwise go to the lessor.
  • Courts more often than not believe it is their job to reject creative legal and factual arguments if the result would be to avoid the plain language of a written agreement.

Chesapeake Stung by a WASP

The leases in question are all similar. Two leases, Trinity Valley School and Bass, provide for alternative methods of determining market value. Plaintiffs argued there is an irreducible minimum starting point, the “weighted average sales price” (the “WASP”), which is the average of the two highest prices paid by purchasers in Tarrant County for gas of the same quality and quantity. This method does not allow for post-production cost deductions. Chesapeake claimed it used a net-back calculation, which was not really a deduction.

The Trinity Valley School leases allow deductions only if the point of first sale is located more than two miles from the leased premises. It was undisputed that the first point of sale was at the wellhead on the premises. The court ruled that no deductions were permitted.

The Bass leases allow for deduction of post-production costs only if the costs are:

  • charged at arms-length by an unaffiliated entity,
  • actually incurred by the lessee for the purpose of making the oil and gas production ready for sale or use or to move said production to market, and
  • incurred by the lessee at a location off of the leased premises.

Chesapeake asserted reasons why it complied with all three prongs of the test. The court enforced the plain language of the leases, rejecting those arguments.

The McKinney lease prohibits deduction of post-production cost in the event of a sale to an affiliate and also specifies that where gas is sold to an affiliate, the price paid for royalties should be determined by the WASP. The court construed the McKinney lease the same as the Bass leases.

The court enforced the contracts as written. Because Chesapeake sells to an affiliate, the market value is determined by the WASP.

For our musical interlude let’s imagine this post-settlement conversation, in which the lessors speak to the lessee.

Wage and Hour Claims Menace Producers

Posted in Litigation, Regulations
Don't be like this fellow.

Don’t be like this fellow.

Co-author Michael Kelsheimer

It’s common knowledge: Fair Labor Standards Act audits from the U. S. Department of Labor and lawsuits from workers for overtime violations are coming faster than a blitzing safety on a third and long.

Native Oilfield Services is the latest target.  Dispatchers and truck drivers brought suit against Native alleging they were not paid for overtime hours.  The company settled with the dispatchers for an undisclosed amount, but Native elected to fight the drivers’ claims.

Neither the jury nor the federal judge accepted Native’s arguments that: (1) the drivers are exempt from overtime, and (2) time waiting for new loads should not be compensated.

With prices in the tank and layoffs prevalent, former employees are eager plaintiffs. One laid-off employee trying to feed the family can lead to a “collective action” on behalf of that employee and everyone else in that job category, past and present. Native had 104 drivers against it.

You don’t have to be worried about one settlement for a few overtime hours a week involving one job position going back two or three years. There’s more. Be concerned about every person who holds and has held that position for the last several years coming back against them.  Plus, the employees could recover statutory damages and attorneys fees.

What should I do?

  • Talk to an employment lawyer.  As good as payroll companies are for many things, do not rely on them for legal advice. Same goes for your CPA. One other reason: Your conversations with your lawyer are privileged from discovery, not so with your payroll company and your CPA.
  • Determine if the employees who are not paid overtime are actually exempt. They might be.
  • Learn if your independent contractors actually fit the legal definition.
  • Check to see if you are correctly paying travel time, wait time, and on-call time.
  • Make adjustments if necessary.
  • Settle potential claims with employees directly to avoid a lawsuit with double overtime payments and fees – for your lawyer and theirs.
  • Remember, it’s cheaper to be proactive than to stick your head in the sand over these claims.
  • If you elect to go ostrich, at least require employees to keep track of their hours. If you don’t think you owe overtime you are unlikely to keep track of employee hours. The result: The employees will estimate the number of hours they worked over 40 each week during the period in question. Do you think the estimate will be high or low?  Employers are hard-pressed to defend the number because they weren’t there to observe and have no contemporaneous records.  If you keep the records, you will have an honest assessment of what you might owe.

Feeling paranoid? You’re in good company. See what happened to Halliburton.

Here’s one for the workers.

How to “Score” a Contract from the Red Zone

Posted in Contract Disputes

red zoneFootball pundits like to discuss Red Zone effectiveness. Driving to the goal line doesn’t much matter if you don‘t score. So, why would a negotiating party fail to score an enforceable contract while negotiating from the Red Zone:

  • He’s in a hurry;
  • He has a “handshake deal”;
  • He won’t sign an agreement until he gets the deal he “deserves”;
  • He’s stubborn;
  • He doesn’t understand that “meeting of the minds” does not mean “reading of the minds”;

To summarize the facts in Conglomerate Gas II, L.P. v. Gibb (a Texas case that applies anywhere):

  • Gibbs is a licensed real estate broker.
  • MTV real estate owned 100% of the surface and 50% of the minerals under the 2,232-acre Rock Creek Ranch and agreed to sell the surface to Crestview and grant an oil and gas lease to Crestview Resources or Anterra Resources.
  • Crestview needed help to cover the purchase price and hired Eichberg to find a buyer. He contacted Gibb, who started working to sell the tract even though he didn’t have a brokerage agreement.  According to Gibb, time was of the essence.
  • From May 23rd to late October there were offers, rejections, and counteroffers. Players came and players went; terms came and terms went. Eichberg would make an offer, Gibb would counter, rinse and repeat.
  • The issue for Gibb was always a minimum commission, which Eichberg would never accept. At one point Eichberg offered a “3% back in working interest on a well by well basis”
  • The parties finally agreed on a cash commission but not on the 3% back in, and Gibb received a cash commission that met his minimum.

The Result

In reversing a jury award to Gibb of $1.8MM in damages and $1.7MM in attorney fees, the court of appeal made the following points:

  • The meaning of the “3% back in working interest on a well-by-well basis” was subject to dispute. There was no meeting of the minds regarding that interest. Without more, it was too vague to have meaning.
  • Although Gibb finally accepted one material term in the original offer (the cash commission) he never agreed on the other (the 3% back in).
  • A counteroffer, which Gibb repeatedly did,  operates as a rejection of the original offer.
  • Contract law requires that an acceptance be identical with the offer in order for there to be a meeting of the minds and therefore a binding contract.
  • The original offer had two material terms, a cash commission and the back in. Gibb always countered with a demand for a minimum commission.  Crestview/Eichberg always said that would not happen.
  • Gibb’s testified about what was “in my mind”. In determining whether parties have formed a contract, objective manifestations of intent to be bound are relevant; unexpressed subjective intentions are not.
  • Testimony about whether a party “countered” or “rejected” is conclusory and of no evidentiary value.
  • A party can’t accept by performance an offer that he has previously rejected by a counteroffer.

How to score? Avoid Gibbs’ mistakes.

Mr. Gibbs’ musical interlude



Citgo Prevails Over EPA at the Fifth Circuit

Posted in Environmental Policy, Regulations

EPA in  ActionUSA v. Citgo Petroleum highlights the excruciating degree of detail in federal regulations and the gymnastics the EPA will employ to justify a prosecution. The Fifth Circuit has reversed Citgo Petroleum’s conviction for violations of two federal laws.

Breathing Easier Under the Clean Air Act

The EPA regulates oil refinery waste water treatment systems under the Clean Air Act. They emit dangerous levels of volatile organic compounds, which produces ozone. so far, so good; now for the minutia:

Can an equalization tank be an “oil water separator”?  The district court used a purely functional explanation – defining an oil water separator by how it is used. This was not correct. Subpart QQQ (See the regs at 40 C.F.R § 60 et seq) defines an oil water separator by how it is used and also by its constituent parts.  It is equipment “… used to separate oil from water consisting of a separation tank, which also includes the forebay and other separator basins, skimmers, weirs, grit chambers, and sludge hoppers.”  When used in this way, “consists” is as an exhaustive list; the components are a part of the definition.

That is different than if the regulation had said “includes”.  Used in that way, that phrase does not mean that the listed equipment is necessary for the regulation to be invoked.  The Court explained that “including” is “inclusive but not mandatory” and distinct from “consisting of”.  The court also cited “Subpart Kb”, which regulates storage vessels excluded from Subpart QQQ.

The government warned that this reading of Subpart QQQ would create a “massive loophole” in the regulatory structure.  The court replied that equalization tanks were not under-regulated because “Subpart Kb” still applies.  Further, the government is authorized under the Clean Air Act to fix the loopholes with new regulations.

How did Texas Approach It?

Is there a difference between state and federal regulators?  Some years before the inspection at issue the Texas Department of Environmental Quality cited Citgo for operating the tanks as oil water separators, agreed that the tanks were not separators under Subpart QQQ, and dropped the charges.

The Migratory Bird Treaty Act of 1918 – Is it “Taking” or Bird Murder?

The MBTA declares it “ … unlawful, by any means or in any manner, to pursue, hunt, take, capture, kill, … any migratory bird.” According to the court, “taking” is limited to deliberate acts done directly and intentionally. To “take” is to reduce those animals by killing or capturing to human control. It involves only conduct intentionally directed at the birds, such as hunting or trapping, not commercial activity that unintentionally and indirectly causes bird deaths.

By contrast, the Endangered Species Act defines “take” to mean “harass, harm, … ”  “Harass” includes a negligent act or omission and “harm” means any act which actually kills or injures wildlife, not only acts that directly result in the death of endangered species.

Other Interesting Facts in the Opinion

  • Take a tour of the refinery wastewater treatment process
  • Have a grammar lesson reminiscent of your high school English class
  • Find out why the court refused to define “kill”
  • Impress your friends by knowing how many birds are killed each year by flying into windows
  • Face the ugly truth that house cats in Wisconsin are “serial violators of the MBTA”
  • Ponder the difference between means rea and actus reus
  • Learn to spot a “temporizing modifier” when you see one.

Speaking of Byrds, here they are for today’s musical interlude. From an under-appreciated album.

New York Fracking Ban: Insult Followed by Injury

Posted in Energy Policy, Lease Disputes
Les Advises the Tigers Not to Buy Leases in NY

Les Advises the Tigers Not to Buy a Lease in NY

Political actions have consequences. A force majeure clause in New York oil and gas leases does not modify the primary term of the habendum clause and the leases are not extended because of the state ban “moratorium” on hydraulic fracturing.

The force majeure clause:

[I]f and when drilling . . . [is] alleged or interrupted . . . as a result of some order, rule, regulation, requisition or necessity of the government, or as the result of any other cause whatsoever beyond the control of Lessee, the time of such delay or interruption shall not be counted against Lessee, anything in this lease to the contrary notwithstanding.”

No operations were conducted during the primary term and there was no production.

This question was certified to the New York State Court of Appeals: “If [the moratorium was a force majeure event] does the force majeure clause modify the habendum clause and extend the primary terms of the leases?” The state court answered “no”.

The Court’s Reasoning

  • The habendum clause did not incorporate the force majeure clause by reference or contain language expressly subjecting it to other lease terms, and the force majeure clause did not specifically refer to the habendum clause.
  • Under New York law the force majeure provision did not supersede all other clauses in the leases, only those with which it was in conflict. Because the two clauses were not in conflict, “anything in this lease to the contrary, notwithstanding” alone was insufficient to compel the conclusion that the force majeure clause modifies the primary term.
  • Because the clause expressly referred to delay or interruption in drilling or production, it follows that the clause only conflicted with, and therefore modified, the secondary term of the habendum clause.
  • The force majeure clause expressly indicated that it dealt with lease termination, not expiration. Thus, the “notwithstanding” language excused lessee’s performance only during the secondary term.

Based on the state court ruling a summary judgment terminating the leases was upheld.

Q and A in Which the Author Interviews Himself

Q:  What is the source of this heresy?

A: You’d be surprised. The court referred to several cases from Texas and California for support. A 1975 Texas case construed identical language in just the same way, meaning that someone didn’t update his forms.

Q:  Did it have to end this way?

A: Of course not. The lessees argued that “anything in this lease to the contrary notwithstanding” has consistently been held to enforce the clause. Several Texas cases could be relied upon for a contrary result. Being the highest court in New York, they could have decided to follow another approach. Supreme courts are fond of saying they just call ball and strikes. But they also define the strike zone, the distance between the bases, the height of the mound, and just about every other aspect of the game.

Q:  What does it mean?

A: Are you asking me, legally or politically? The legal effect is, if the “moratorium” ever ends, many lessees will by paying again for leases they paid for once before. Politically … not my problem, and unless you have leases in New York it’s not yours either.

And this musical commemoration of LSU v. McNeese.

Finally, Les’s failure to stop the lightning is yet another reason to fire him. You-know-who-I’m-talkin’-about would have willed the storms to proceed away from Tiger Stadium … quickly.