Louisiana Supreme Court Grants UNOCAL’s Writ Application from Third Circuit Decision Involving Prescription and Breach of Contract in Act 312 Case

Liskow & Lewis

On October 6, 2020, the Louisiana Supreme Court granted a writ application filed by UNOCAL in State of Louisiana, et al. v. Louisiana Land & Exploration Co., et al. This application sought review of the Louisiana Third Circuit’s decision that affirmed the Vermilion Parish School Board’s authority to sue on behalf of the state, rejected a prescription defense on the basis of prescription immunity under the Louisiana Constitution, and found that “environmental damage” as defined under Act 312 is sufficient to trigger a breach of contract claim. A detailed summary of the Third Circuit’s decision can be found here.

Additionally, a motion to recuse was filed to remove Justice Crain from the case.  The argument alleged bias against Plaintiff’s counsel, John Carmouche of Talbot, Carmouche, and Marcello, based on a campaign advertisement in support of then-Judge Crain’s candidacy for the Louisiana Supreme Court.  Justice Crain had been previously removed from a case involving the Talbot, Carmouche, and Marcello law firm; however, in this case, the Louisiana Supreme Court denied Plaintiff’s request, allowing Justice Crain to consider the writ application.

In its application, UNOCAL pointed out that this case raises important, recurring issues of Louisiana law and gave three reasons the Court should grant review.

First, the Third Circuit failed to apply the manifest error standard of review when it overruled the jury’s verdict finding that no breach of contract occurred without considering whether there was a reasonable basis for the jury’s findings.  Instead, UNOCAL argued, the Third Circuit usurped the jury’s role as the trier of fact and used UNOCAL’s admission under Act 312 to impose private liability, reasoning that because the jury found that environmental damage exists for purposes of Act 312, the jury was required to find that Defendant operated “unreasonably” and “excessively” in breach of its contractual lease obligations. UNOCAL additionally asserted that the Third Circuit improperly read a present-day regulatory standard into the parties’ decades-old lease, in direct contravention of the fundamental principle of Louisiana contract law that the “laws existing at the time a contract is entered into are incorporated into and form a part of the contract as though expressly written therein.” Moreover, the Third Circuit’s interpretation of Act 312 raises constitutional issues, such as violations of due process, under both the Louisiana and Federal Constitutions.

Second, finding that Plaintiff’s strict liability claim had not prescribed, the Third Circuit ignored well-founded principles of statutory interpretation. The Third Circuit found the School Board was entitled to bring virtually any kind of claim in the State’s name, thus shielding its claims from prescription. This determination ignored the plain language of La. Rev. Stat. § 41:961 –  which addresses when a school board can file a claim on the State’s behalf – and introduced a new, overly broad application of the public trust doctrine that is contrary to statute and precedent. UNOCAL further noted that neither of the two public trust doctrine decisions issued by the Supreme Court suggest that the doctrine applies in this case to shield the School Board’s claims from liberative prescription.

Third, UNOCAL argued the Third Circuit’s decision is contrary to the public purpose of Act 312 and will undermine the statutory incentive for leaseholders to agree to work with LDNR to clean up environmental damage. Additionally, by transforming a regulatory obligation into a breach of contract, plaintiffs will be even more inclined to request excess private damages in every Act 312 case.

Urging review, UNOCAL claimed that the decision at issue is likely to have a sweeping impact on pending and future Act 312 cases. For example, once the Third Circuit released its opinion, other plaintiffs in legacy suits began filing summary judgment motions seeking findings of breached lease obligations when there is evidence that leased property is out of compliance with present day regulations, and that recoverable damages for such regulatory obligations are not limited to the damages necessary to remediate property to state regulatory standards.

The Louisiana Supreme Court unanimously granted UNOCAL’s application and set the case for argument on the Court’s next available docket.  Liskow & Lewis attorneys Kelly Becker and Kathryn Gonski authored an amicus brief in support of UNOCAL’s writ application.  The Louisiana Supreme Court’s decision on this matter will have a notable impact on legacy lawsuits and the relationship between Act 312 and admissions of “environmental damage.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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