Louisiana’s Third Circuit (Again) Affirms the Applicability of the Subsequent Purchaser Doctrine to Mineral Leases

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While oil and gas company-defendants—and several courts alike—have deemed the applicability of the subsequent purchaser doctrine to mineral leases a settled issue of law, plaintiff-landowners have continued to argue otherwise.  In a unanimous opinion issued July 18, 2018 in Grace Ranch, LLC v. BP America Production Company, et al., the Third Circuit not only provides yet another example of the uniform application of the doctrine in cases involving mineral rights under Louisiana law, but expressly and thoroughly rejects the numerous arguments on which plaintiffs-landowners have continued to rely.

In Eagle Pipe and Supply, Inc. v. Amerada Hess Corp., 10-2267 (La. 10/25/11), 79 So. 3d 246, a case that did not involve mineral rights, the Louisiana Supreme Court held that whether damage to property is apparent or unapparent, the right to sue for such damage is a personal right that belongs to the landowner at the time the damage occurred unless the right has been explicitly assigned or subrogated to the subsequent purchaser of the land.  Both before and after this decision, numerous Louisiana and federal appellate courts have concluded that this doctrine—known as the subsequent purchaser rule—applies in cases involving mineral rights.

Nonetheless, plaintiffs-landowners have consistently argued that the doctrine does not apply to mineral rights, alleging contrived conflicts among the Louisiana appellate courts (and within the Third Circuit specifically) and seeking a distinction for mineral rights based on their classification as a real right, principles governing limited personal servitudes, and other provisions of the Louisiana Mineral Code and Civil Code.  While these arguments all have been made and rejected by prior decisions, the Grace Ranch court methodically explains the shortcomings of each.  Most notably, the court explains unequivocally that all Louisiana circuits agree that Eagle Pipe applies to mineral leases, and that the language from a prior decision of the Third Circuit which plaintiffs-landowners contend creates an intra-circuit conflict on the issue “does not equate to a finding that Eagle Pipe cannot apply in mineral leases.”

In addition to rejecting the general arguments raised against the applicability of the doctrine to mineral rights, the Grace Ranch court also held that the post-sale assignments allegedly obtained by the plaintiffs did not provide them the right to sue for pre-purchase damage to the property.  The court (i) held that a corporation dissolved by affidavit could not issue a legally valid assignment, (ii) found the claims did not relate back to the original petition and thus were prescribed, and (iii) reaffirmed its prior ruling in Lejeune Brothers, Inc. v. Goodrich Petroleum Co. that there can be no assignment of rights under an expired mineral lease.

Accordingly, the court affirmed the trial court’s judgment granting motions for summary judgment and an exception of no right of action in favor of the defendants.

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