A recent decision from the Louisiana First Circuit Court of Appeal may have lasting effects on good faith purchasers of oil. In Hill v. TMR Exploration, Inc, 2021 WL 267916, the First Circuit affirmed a district court ruling on summary judgment applying the good faith purchaser defense provision set forth in La. Civ. Code arts. 521-524 instead of applying provisions of the Mineral Code, more specifically, La. R.S. 31:210, and the registry mandate included therein. A detailed summary of the First Circuit’s decision can be found here.
In 2007, The Louisiana Commissioner of Conservation granted TMR a permit to drill for minerals on property not owned by Plaintiffs (collectively, the “Hills”). The Hills claim that TMR, and its successor operators, produced and sold minerals from underneath their property without their knowledge or consent.
The Hills later added claims against Sunoco, who was the purchaser of oil produced by TMR and the other operators. Sunoco, claiming its only relationship to the suit was a third-party purchaser of oil, filed a motion for summary judgment asserting that it had no legal liability to the Hills. However, the Hills argued that because the operators had no right to obtain, capture or possess the Hills’ oil, they did not have the authority to sell it to Sunoco; the Hills, therefore, could recover from Sunoco unless Sunoco was protected by La. R.S. 31:210. Louisiana Revised Statute 31:210 protects third-party purchasers if they buy minerals produced from the last record owner of a recorded lease, so long as they have filed notice of purchase in the conveyance records of the parish where the lease is located. The Hills claimed that since Sunoco did not record notice that it was purchasing oil from the well, it was not entitled to the statutory protection.
The district court, applying La Civ. Code arts. 521-524’s good faith purchaser defense, rather than La. R.S. 31:210, granted Sunoco’s motion for summary judgment stating that Sunoco lacked actual or imputed knowledge that the seller was not the owner of the oil.
On appeal, the Hills contended that the district court erred in applying the good faith doctrine, which gave precedence to the Civil Code over the Mineral Code’s, La. R.S. 31:210 and, because Sunoco failed to file notice of the mineral purchase in the registry of West Baton Rouge, Sunoco was not entitled to the protection under La. R.S. 31:210.
Sunoco maintained that the district court applied La. Civ. Code arts. 522-524 correctly in holding that Sunoco was protect as a good faith purchaser. Sunoco contended that the Louisiana Civil Code provides a good faith purchaser defense in all sales of movables that are not required to be registered, including sales of oil. Sunoco further argued that the history of the “last record owner” protection of La. R.S. 31:210 has only been applied to wholly distinguishable situations involving third-party purchasers of minerals from a recorded lease, previously granted by the “last record owner,” who were unaware of the existence of a title dispute.”
The court found that Sunoco met its burden in showing that it was a good faith purchaser of the oil, that La. R.S. 31:210 did not apply, and that the Hills’ argument that La. R.S. 31:210 preempts provisions of the Louisiana Civil Code had no merit. Louisiana Revised Statute 31:210 addresses rental and royalty payments that are owed to parties holding an interest in the leased property when an issue arises as to title. Subsurface trespass allegations do not warrant application of La. R.S. 31:210. All claims filed by the Hills against Sunoco were dismissed with prejudice. The court’s decision in this matter may have lasting impacts on plaintiffs who claim subsurface trespass, as they will have a harder time recovering from third-party purchasers.