GLORIA'S RANCH, L.L.C. Plaintiff-Appellee
TAUREN EXPLORATION, INC., CUBIC ENERGY, INC., WELLS FARGO ENERGY CAPITAL, INC., AND EXCO USA ASSET, INC. Defendants-Appellants
from the First Judicial District Court for the Parish of
Caddo, Louisiana Lower Court Case No. 541768 Honorable Ramon
W. HAMMOND, APLC By: Kevin W. Hammond Counsel for
Appellant(s) Tauren Exploration, Inc. & Cubic Louisiana,
& LEWIS By: Kelly B. Becker Kathryn Z. Gonski Michael D.
Rubenstein Counsel for Appellant Cubic Louisiana, LLC.
MILLER, LLP By: Linda S. Akchin Richard D. McConnell, Jr.
Samuel O. Lumpkin Richard S. Pabst Scott L. Zimmer William R.
Huguet Counsel for Appellant Wells Fargo Energy Capital, Inc.
BULLINGTON & COOK, L.L.C. By: Guy E. Wall Paul E.
Bullington Philip M. Wood Jonathan R. Cook WEINER, WEISS
& MADISON, A PROFESSIONAL CORPORATION By: Jeffrey W.
Weiss Counsel for Appellee Gloria's Ranch, L.L.C.
MOORE, STONE, and COX, JJ.
appeal arises from the trial court's judgment canceling a
mineral lease granted by Gloria's Ranch, L.L.C., to
Tauren Exploration, Inc. The trial court awarded Gloria's
Ranch over $23, 000, 000 in monetary awards and close to $1,
000, 000 in attorney fees. Tauren Exploration, Inc., Cubic
Energy, Inc., EXCO USA Asset, Inc., and Wells Fargo Energy
Capital, Inc., were found solidarily liable for these awards.
For the following reasons and based on the individual facts
and circumstances of this case, we affirm the trial
court's judgment and award additional attorney fees.
AND PROCEDURAL BACKGROUND
September 17, 2004, Gloria's Ranch, L.L.C.,
("Gloria's Ranch"), granted a mineral lease
("the lease"), covering 1, 390.25 acres in Sections
9, 10, 15, 16, and 21, Township 15 North, Range 15 West,
Caddo Parish, Louisiana ("the property"), to Tauren
Exploration, Inc. ("Tauren"). The lease granted
Tauren the exclusive right to explore for, and produce
minerals from, any and all depths, horizons, and formations
under the land. The primary term of the lease was three
years; thereafter, the lease continued "as long ... as
oil, gas, sulphur or other minerals … produced from
said land hereunder or from land pooled therewith." The
lease also contained vertical and horizontal Pugh
February 13, 2006, Tauren assigned an undivided 49% interest
in the lease to Cubic Energy, Inc. ("Cubic"). The
effective date of the assignment was February 6, 2006.
March 5, 2007, Tauren and Cubic executed separate credit
agreements with Wells Fargo Energy Capital, Inc. ("Wells
Fargo"). Pursuant to its credit agreement with Wells
Fargo, Cubic received a revolving credit
facility not to exceed $20, 000, 000 outstanding at
any time and a $5, 000, 000 convertible term
loan. As security for its loans with Wells
Fargo, Cubic mortgaged its interest in mineral leases with
various landowners, including Gloria's Ranch, and
collaterally assigned the profits therefrom ("Cubic
2007, Tauren contracted with Fossil Operating, Inc.
("Fossil"), to conduct oil and gas operations on
the property. Fossil drilled and completed wells on
Gloria's Ranch's property in Sections 9, 10, and 16.
The wells in Sections 9 and 10 ("Gloria's Ranch
9-1" and "Gloria's Ranch 10-l") were
vertically drilled to the Cotton Valley formation. Fossil
vertically drilled the well in Section 16 ("Gloria's
Ranch 16-1") to the Haynesville Shale formation, but
completed the well only to the shallower Cotton Valley
the primary term of the lease, Chesapeake Operating, Inc.
("Chesapeake"), conducted oil and gas operations in
Sections 15 and 21. Chesapeake completed Cotton Valley wells
in Sections 15 and 21 ("Soaring Ridge 15-1" and
"Feist-21-1"), which were unitized with
Gloria's Ranch's property in those sections. In 2008,
all of Gloria's Ranch's property in Section 15 was
unitized in the Soaring Ridge 15-15-15H ("Soaring Ridge
15H"), a 640-acre unit that Chesapeake horizontally
drilled into the Haynesville Shale formation.
September 1, 2009, Gloria's Ranch executed a top
lease to Chesapeake for the right to conduct oil
and gas operations on its property in Section 21.
October 30, 2009, Tauren and EXCO USA Asset, Inc.
("EXCO"), negotiated a purchase and sale agreement
whereby EXCO purchased Tauren's 51% interest in the lease
as to all depths below the base of the Cotton Valley
formation ("deep rights"). On November 9, 2009,
Tauren formally assigned its deep rights interest in the
lease to EXCO for $18, 000 per acre. Tauren maintained a 51%
interest in the lease as to all depths above the base of the
Cotton Valley formation ("shallow rights").
virtue of the EXCO sale, Wells Fargo released the mortgage it
had on Tauren's interest after receiving repayment and
compensation pursuant to the credit agreement. As a condition
of Wells Fargo releasing the mortgage, Tauren assigned a 10%
net profits interest in its shallow rights interest in the
lease to Wells Fargo. Additionally, on November 9, 2009,
Cubic assigned to Tauren an overriding royalty interest in
the deep rights of its 49% interest in the lease. Tauren
immediately assigned a portion of this overriding royalty
interest to Wells Fargo.
December 3, 2009, Gloria's Ranch sent a letter to Tauren,
Cubic, EXCO, and Wells Fargo (collectively referred to as
"the defendants"), requesting they provide
information on the monthly revenue and operating expenses of
the wells on or unitized with the lease. In the letter,
Gloria's Ranch expressed a belief that the lease had
expired, in whole or in part, for lack of production in
paying quantities. After investigating the matter, Tauren
responded it had incorrectly allocated monthly revenues and
operating expenses of the Gloria's Ranch 9-1, 10-1, and
16-1. Tauren recalculated the revenue and operating expenses,
and determined the lease was operating at a profit.
Tauren's response made no mention of the Feist-21 or the
Soaring Ridge 15H. On January 28, 2010, dissatisfied with
Tauren's reply, Gloria's Ranch sent a letter to the
defendants demanding a recordable act evidencing the
expiration of the lease. However, the defendants did not
release the lease.
Gloria's Ranch filed suit against the defendants for
their failure to furnish a recordable act evidencing the
expiration of the lease. In its petition, Gloria's Ranch
argued the lease expired in 2009, in whole or in part, for
failure to produce in paying quantities. Gloria's Ranch
argued the defendants' failure to release the lease
prevented it from leasing the property to others, thereby
damaging it in the amount of bonus payments, rentals, and
royalties it would have received. Gloria's Ranch later
amended its petition to include a claim for unpaid royalties.
According to Gloria's Ranch, if the trial court found the
lease was maintained in Section 15 by production from the
Soaring Ridge 15H, the defendants failed to pay royalties on
the well's production.
August 13, 2014, Gloria's Ranch executed a settlement
agreement with EXCO. Gloria's Ranch granted EXCO a new
lease, and EXCO was dismissed from the suit ("EXCO
a four-day bench trial, the trial court rendered judgment
declaring the lease "expired" and
"canceled." In its oral reasons for judgment, the
trial court stated:
The lease terminated as to all depths below the Cotton Valley
Sand because the defendants did not drill the 16-1 well in
good faith. Additionally, the lease expired as to depths in
Sections 9, 10, 16, and 21 because there was no production in
paying quantities from the unit wells for at least 12 months
prior to January 28th, 2010.
trial court awarded damages for lost-leasing opportunities at
$18, 000 per acre. Additionally, the trial court found
Gloria's Ranch was entitled to royalties from the Soaring
Ridge 15H's production, plus punitive damages for the
defendants' failure to pay royalties upon written notice
of nonpayment. The defendants were found solidarily liable
for Gloria's Ranch's damages and attorney fees as
1. $22, 806, 000 for the lost leasing opportunities in
Sections 9, 10, and 16 ($18, 000 per acre for 1, 267
2. $242, 029.26 for unpaid royalties from the Soaring Ridge
3. $484, 058.52 as a penalty for failure to pay royalties due
from the Soaring Ridge 15H.
4. $925, 603 for Gloria's Ranch's pretrial attorney
fees and expert costs; and
5. $11, 200 for attorney fees incurred by Gloria's Ranch
Cubic, and Wells Fargo filed motions for new trial. On
November 23, 2015, the trial court issued a judgment granting
the motions, in part, to reduce the damage awards by 25% to
account for the EXCO settlement. Asserting separate
assignments of error, Tauren, Cubic, and Wells Fargo now
well settled that a court of appeal may not set aside a trial
court's or a jury's finding of fact in the absence of
"manifest error" or unless it is "clearly
wrong." Rosell v. ESCO, 549 So.2d 840, 844 (La.
1989). In Hayes Fund for First United Methodist Church of
Welsh, LLC v. Kerr-McGee Rocky Mountain, LLC,
2014-2592 (La. 12/08/15), 193 So.3d 1110, the Supreme Court
reaffirmed the manifest error standard of review, and
articulated the duty of appellate courts when reviewing a
trial court's factual finding. According to the Supreme
Court, an appellate court may not reverse a trial court's
factual finding by determining it would have found the facts
of the case differently. Rather, in reversing a trial
court's factual conclusions, an appellate court is
obliged to satisfy the following two-step process based on
the record as a whole: 1) there must be no reasonable factual
basis for the trial court's conclusion; and 2) the
finding must be clearly wrong. Hayes, supra; Stobart v.
State through Dept. of Transp. & Dev., 617
So.2d 880, 882 (La. 1993).
determining whether the trial court's finding was clearly
wrong or manifestly erroneous, the Supreme Court stated the
two-step process requires the appellate court to review the
entire record. The issue to be resolved on review is not
whether the judge or jury was right or wrong, but whether the
judge's or jury's fact-finding conclusion was a
reasonable one. Hayes, supra; Rosell,
supra. Notably, reasonable persons frequently can and do
disagree regarding causation in particular cases, but where
there are two permissible views of the evidence, the
fact-finder's choice between them cannot be manifestly
erroneous or clearly wrong. Hayes, supra;
Rosell, supra; Baw v. Paulson, 50,
707 (La.App. 2 Cir. 06/29/16), 198 So.3d 186, 190. The
Supreme Court, quoting an earlier opinion, summarized the
deferential nature of this standard of review as follows:
The manifest error doctrine is not so easily broached. Rarely
do we find a reasonable basis does not exist in cases with
opposing views. We note it is not hard to prove a reasonable
basis for a finding, which makes the manifest error doctrine
so very difficult to breach, and this is precisely the
function of the manifest error review. A reviewing court only
has the "cold record" for its consideration while
the trier of fact has the "warm blood" of all the
litigants before it. This is why the trier of fact's
findings are accorded the great deference inherently embodied
in the manifest error doctrine. So once again we say it
should be a rare day finding a manifest error breach when two
opposing views are presented to the trier of fact.
Hayes, 193 So.3d at 1117 (quoting Menard v.
Lafayette Ins. Co., 09-1869 (La. 03/16/10), 31 So.3d
persuasive the argument, appellate courts do not function as
choice-making courts; appellate courts function as
errors-correcting courts." Hayes, 193 So.3d at
1112. With this principle in mind, we consider the
defendants' assignments of error challenging the trial
court's November 23, 2015 judgment.
Assignments of Error
in Paying Quantities
argues the trial court erred in finding the lease expired as
to Sections 9, 10, 16, and 21, no later than January 28,
2010, for failure to produce in paying quantities. La. R.S.
31:124 ("Article 124") requires production in
paying quantities when a mineral lease is maintained by
production of oil or gas. The jurisprudence is well settled
that even though production continues beyond the primary
term, the term of the lease may expire and the contract be
automatically dissolved if production is not "in paying
quantities." Landry v. Flaitz, 245 La. 223,
233, 157 So.2d 892, 895 (1963); B.A. Kelly Land Co.,
L.L.C. v. Questar Expl. & Prod. Co., 47, 509
(La.App. 2 Cir. 11/14/12), 106 So.3d 181, 191, writ
denied, 2013-0331 (La. 04/19/13), 112 So.3d 223. One of
the prime motivations of the requirement that there be
production in paying quantities is that the lessee should not
be permitted to maintain the lease indefinitely merely for
speculative or other selfish purposes. La. R.S. 31:124,
standard by which paying quantities is determined is whether
or not under all the relevant circumstances, a reasonably
prudent operator would, for the purpose of making a profit or
minimizing loss, continue to operate a well in the manner in
which the well in question was operated. La. R.S. 31:124,
comment; see also Middleton v. EP Energy E & P Co.,
L.P., 50, 300 (La.App. 2 Cir. 02/03/16), 188 So.3d 263,
writs denied, 2016-0786 (La. 06/17/16), 192 So.3d
773, 2016-0778 (La. 06/17/16), 192 So.3d 774; and Wood v.
Axis Energy Corp., 2004-1464 (La.App. 3 Cir. 04/06/05),
899 So.2d 138, 143, writ denied, 2005-1137 (La.
06/17/05), 904 So.2d 702. Implicit in the term "paying
quantities" is the requirement that the production
income exceed operating expenses. Middleton, supra.
courts generally use a 12-month to 18-month period to
evaluate whether or not a well is producing in paying
quantities. See Wood, supra (12-month period used);
Edmundson Bros. P'ship. v. Montex Drilling Co.,
98-1564 (La.App. 3 Cir. 05/05/99), 731 So.2d 1049 (18-month
period used); and Menoah ...