Lawyers and landmen are taught that a document affecting real or immovable property not recorded in the public records means nothing to a stranger. Like O. J.’s quest for the real killer, lower premiums after the Patient Protection and Affordable Care Act, and the present I would have given my wife except I forgot our anniversary, treat it like it never happened. Freeman v. Block “T” Operating LLC tells us – too late to save our healthcare system and the sanctity of my wedding vows – that’s not always the case.
Kurios assigned 2.5% of 8/8ths overrides in wells in Acadia and Jefferson Davis Parishes (the percentage was different on one well but that doesn’t matter here). The assignments were not recorded. Kurios then conveyed to Block T a 20% working interest and a 14% NRI. These assignments were recorded.
After Block “T” acquired and recorded its interests, the plaintiffs-override owners recorded their assignments. Block “T” assumed operations and payment of proceeds from production, and the plaintiffs demanded payment.
Plaintiffs then sued Block T, operator and partial working interest owner, for payment. Block T asserted the public records doctrine (codified in Louisiana Civil Code Art. 3338) as a defense. According to the court, the public records doctrine did not apply.
The gist of the ruling is that “The recorded documents indicate that the net revenue interest owners received only a portion of the leasehold interest of each well. The retained leasehold, the assignments demonstrate, was sufficient so as to create the overriding royalty interest in the percentages claimed by the plaintiffs.”
The plaintiffs’ position was that the working interest assignment to Block “T” and others was based on a portion of the overall NRI, and that adding the landowners royalty and the working interest assignments together would demonstrate that Kurios retained a sufficient leasehold interest that permitted it to convey the override to the plaintiffs. This, the court said, was apparent on the public record.
The court found that Block “T”, as the operator of the wells and the party responsible for properly distributing revenues from the properties, was the appropriate party to be cast in judgment for payment of the overrides.
It’s not as Weird as You First Imagine
At first blush, this is perplexing because it appears that Block T, upon receiving a leasehold assignment, was required to “do the math” to figure out who to pay and how much to pay them. This is especially so in light of this comment in the opinion: “The primary focus of the public records doctrine is the protection of third persons against unrecorded interests”. But focusing on the court’s approach reveals that Block T’s liability was as the operator charged with paying proceeds properly, and not as the recipient of an assignment without notice of existing overrides.
Here is the musical dilemma faced by Block T. You gotta love the way Garth Hudson plays the organ.