Louisiana First Circuit Reaffirms Prescription and Subsequent Purchaser Principles

Liskow & Lewis

In Lexington Land Development, L.L.C. v. Chevron Pipelines Company, et al., 2020-0622 (La. App. 1 Cir. 5/25/21), 2021 WL 2102932, —So. 3d—, the Louisiana First Circuit recently reaffirmed well-settled principles regarding prescription and the subsequent purchaser doctrine in Louisiana legacy cases.

In this case, Lexington Land sued Chevron U.S.A., Inc. for alleged damage to its property arising out of Chevron’s and its predecessor’s oil and gas operations in the Sardine Point Field from 1959 through 1991. Lexington Land purchased the property in June 2005 but did not obtain from the prior owners an assignment of the right to sue for property damage that occurred before the 2005 sale. In the act of sale, Lexington Land acknowledged several disclaimers of warranty by the prior owners regarding the environmental condition of the property related to oil and gas operations, and these disclaimers were factored into the $6.9 million purchase price. To finance the sale, lenders also required Lexington Land to hire a consultant to prepare environmental assessments of the property. Those assessments, which Lexington Land received in 2005, discussed the environmental condition of the property from historical oil and gas operations and included aerial photos showing saltwater scarring and stressed vegetation near a former production pit. One of the assessments further included two 1991 LDNR compliance orders to Stone Petroleum, requiring the closure of two pits and finding that the pits were not in compliance with Statewide Order 29-B because they were full and had overflowed in the past. Although Lexington Land had these assessments in 2005, it did not file suit until December 2007 following a pipeline rupture on the property.

In 2009, the trial court granted Chevron’s motion for partial summary judgment to dismiss all claims for pre-2005 damage to the property under the subsequent purchaser doctrine. To avoid this ruling, Lexington Land obtained an assignment of the right to sue for pre-acquisition damage from the prior owners who granted the mineral and surface leases under which Chevron and its predecessor operated on the property. In October 2013, Lexington Land filed a supplemental and amending lawsuit asserting its assigned claims against Chevron under both tort and contract theories. Chevron responded by filing an exception of prescription, arguing that all amended claims were prescribed (time-barred) under a one-year prescriptive period because Chevron’s operations ceased in 1991 and Lexington Land had actual knowledge of alleged damage to the property by at least December 2007 when it originally filed suit. The trial court agreed, finding that the disclaimers in the act of sale combined with the information in the environmental assessments were sufficient to put Lexington Land on notice of potential damage to the property in 2005 and thus its amended claims against Chevron were all prescribed.

The First Circuit affirmed both the prescription and subsequent-purchaser rulings on appeal. On prescription, the First Circuit applied a straight-forward reading of the Louisiana Supreme Court’s ruling in Marin v. Exxon Mobil Corporation, 2009-2368 (La. 10/19/10), 48 So. 3d 234, to find that Lexington Land’s claims were prescribed. Like the dying sugarcane crops that were sufficient to provide the Marin landowners’ with constructive knowledge of their claims, the environmental assessments, coupled with the disclaimers in the act of sale, were sufficient to provide Lexington Land with constructive knowledge of its claims more than a year before suit was filed. Next, the First Circuit found that, regardless whether Lexington Land’s assigned contract claims were prescribed, those claims were still subject to dismissal under prior case law because the surface and mineral leases under which Chevron operated expired before Lexington Land obtained its assignment from the prior owners. Finally, on the subsequent-purchaser issue, the First Circuit found that, when Chevron’s motion was decided in 2009, Louisiana jurisprudence “firmly established” that the right to sue for pre-acquisition property damage is a personal right that does not transfer to a subsequent purchaser absent an express assignment or subrogation of that right from the prior owner. Because Lexington Land had no such assignment when it originally filed suit, its claims for pre-acquisition damages were barred under the subsequent purchaser doctrine.

This opinion reinforces several key concepts in legacy cases. First, outward signs of environmental damage that are known by the landowner-plaintiff will be sufficient constructive knowledge to trigger the applicable prescriptive period. Second, as found here and in numerous other cases, claims arising from an expired mineral or surface lease cannot be assigned. Third, a purchaser of allegedly contaminated property has no right to sue for damage that occurred before its purchase, absent an express assignment of the prior owner’s right to sue for such damage.

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