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Samson Contour Energy E & P, L.L.C v. Smith

Court of Appeals of Louisiana, Second Circuit

December 29, 2014

SAMSON CONTOUR ENERGY E & P, L.L.C Plaintiff-Appellant
v.
BILLY JEAN SMITH, ET AL Defendants-Appellees JOE LYNN ROBINSON AND MARK ALLEN SMITH, INDEPENDENT CO-ADMINISTRATORS OF THE SUCCESSION OF EFFIE SMITH CONNELL Plaintiff-Appellees
v.
SAMSON CONTOUR ENERGY E & P, L.L.C. Defendant-Appellant

Appealed from the Twenty-Sixth Judicial District Court for the Parish of Webster, Louisiana Trial Court Nos. 66462 & 67054 Honorable Allen P. Self, Jr., Judge

GLENN L. LANGLEY Counsel for Appellant JULIANNA P. PARKS

GRAYDON K. KITCHENS, JR. Counsel for Appellees, Gary Carl Smith, Mark Alan Smith, Individually, and Rose Marie Smith McDonald

JOHN C. CAMPBELL Counsel for Appellees, Joe Lynn Robinson, Individually, Nelda Robinson Gremillion and Peggy Robinson Brunson

SARAH A. KIRKPATRICK Counsel for Appellees, DAVID R. TAGGART Succession of Effie H. Smith Connell, Joe Lynn Robinson, Co-Administrator and Mark Alan Smith, Co-Administrator

Before BROWN, WILLIAMS and PITMAN, JJ.

WILLIAMS, J.

The defendant, Samson Contour Energy E & P, L.L.C., appeals a judgment in favor of the plaintiff, Succession of Effie Connell. The trial court found that defendant owed the plaintiff the amount of $1, 301, 149.13 in royalty payments. Finding that the defendant's failure to pay was wilful and unreasonable, the trial court rendered judgment awarding the plaintiff damages of double the amount of royalties due, legal interest and attorney fees. For the following reasons, we affirm.

FACTS

Effie Connell and her children, Billy Smith and Betty Smith Robinson, owned certain tracts of land and mineral interests in Section 8, Township 17 North, Range 9 West, Webster Parish. Their property was leased for oil and gas exploration in the early 1970s and those leases have been maintained by production. The royalty interest in the leases was owned ½ by Connell and 1/4 each by her children.

In May 1996, Connell executed an act of donation giving her undivided ½ mineral and royalty interest in the Section 8 property and wells to Billy Smith and reserving a lifetime usufruct on royalties produced from the Smith B-1 and B-2 wells. Effie Connell died in January 2001, survived by her two children. In 2003, Samson Contour Energy E & P, L.L.C. ("Samson"), acquired an interest as lessee under the leases and became the leasehold owner responsible for the payment of lease royalties.

Subsequently, Betty Robinson, the daughter of decedent, Connell, filed a petition to annul the May 1996 donation to her brother, Billy Smith. In April 2004, Samson was informed of the annulment action and suspended royalty payments for the ½ royalty interest in existing wells subject to the donation. In January 2005, the district court rendered judgment annulling the donation and ordering the transfer of the ½ mineral interest in Section 8 to the Succession of Effie Smith Connell ("the Succession"). In February 2005, Samson received an uncertified photocopy of the annulment judgment.

At the time of Samson's suspension of royalties in April 2004, there were various wells in production in Section 8 pertaining to the disputed ½ Connell interest. Nevertheless, between June 2004 to February 2006, Samson drilled six new wells in Section 8 that were completed after its suspension of the disputed interest. However, in calculating the royalty payments for these new wells, Samson used its former ownership interest information for Section 8 by which Billy Smith and his assignees had been paid. As a result of Samson's mistake, royalties attributable to the disputed ½ Connell interest and subject to the annulment action were erroneously paid to Billy Smith and his assignees, Mark Smith and Gary Smith. The royalty payments for those six wells during that time period totaled $1, 301, 149.13 and became the subject of this royalty payment dispute.

In June 2006, Mark Smith and Joe Robinson, co-administrators of the Succession, sent letters of administration to Samson and requested that royalty funds attributable to the Connell interest and held in suspense be paid to the estate of Effie Smith Connell. In a document titled "Transfer of Interest, " Samson acknowledged receiving the letters of administration and stated that its records had been updated to show that the royalty interest of Connell had been transferred to Effie Smith Connell Estate. Samson also assigned the Succession an owner number separate from Effie Connell's individual number.

In July 2006, Robinson advised Samson that its email listing the wells in which the Succession owned an interest did not include the Section 8 wells. Samson replied that its records showed that the Connell estate did not own any interest in the production from the Section 8 wells and requested documentation showing such an interest. In response, Joe Robinson and Nelda Robinson Gremillion each separately sent Samson another copy of the annulment judgment and requested that Samson correct its records regarding the Section 8 wells.

On July 19, 2006, Samson posted on its website that a check in the amount of $946, 237.88 for royalties would be issued to "Effie Holley Smith Connell Estate." On this same date, Nelda Gremillion, a daughter of Betty Robinson, sent Samson written notice that the amount posted but not yet paid was less than half of the amount which the Succession's accounting had estimated was due to the Succession for the Section 8 royalties alone. Gremillion informed Samson that it had made an error in accounting or in transferring the Section 8 wells to the Succession. Samson replied that it would research the matter. However, on July 25, 2006, Samson issued a check for the same amount previously posted. One week later, Joe Robinson, co-administrator of the Succession, and Gremillion traveled to Samson's office in Tulsa. On August 3, 2006, Robinson hand delivered a letter notifying Samson of the royalty underpayment.

In October 2006, Samson filed a concursus proceeding and monies from the subsequent production of Section 8 wells began to be deposited into the registry of the court. By that time, Samson reported that 19 wells had been drilled in Section 8 affecting the Connell family lease rights. Samson named as defendants all of the heirs of Effie Connell, including Billy Smith, Gary Smith, Mark Smith, Rose McDonald, Joe Robinson, Nelda Gremillion and Peggy Robinson Brunson. Significantly, the disputed $1, 301, 149.13 in royalties attributable to six of the Section 8 wells from prior production were not identified in the October 2006 concursus filing. In May 2007, the Succession filed an action alleging failure to pay royalties by the defendant, Samson, and seeking cancellation of the mineral leases.

In September 2010, after the parties filed a joint motion for partial summary judgment, the trial court found that the Succession was the owner of the royalty interest. The court rendered partial summary judgment ordering that the funds deposited in the registry be disbursed to the Succession, closing the registry and reserving the parties' rights to pursue their other claims. In August 2012, Samson filed a motion to amend the concursus action to assert claims against individual heirs. The court denied the motion.

At the start of trial in February 2013, the court granted a motion to quash a subpoena duces tecum issued to the heirs, finding that the concursus was closed and the heirs were not before the court. Mark Smith, in his individual capacity, filed a motion in limine to preclude evidence regarding Samson's claims against the heirs of Connell. The trial court issued an injunction prohibiting Samson from filing any action against the heirs in any court until the current trial was completed. The trial was recessed until June 2013 for completion. When trial resumed, the court denied Samson's exception of nonjoinder seeking to add Mark Smith as a party.

After a bench trial, the court issued an opinion finding that the Succession had given Samson sufficient notice of nonpayment of royalties under Article 137 of the Mineral Code and that Samson owed $1, 301, 149.13 in royalty payments. The court found that Samson's payment to the heirs of royalties due to the Succession was not relevant because Samson was in the superior position to remedy the mistake after receiving notice from the Succession. The court further found that Samson's failure to pay was not reasonable and that Samson was liable for damages of double the amount of royalties ...


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