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Gladney v. Anglo-Dutch Energy, L.L.C.

Court of Appeals of Louisiana, Third Circuit

October 2, 2019



          Samuel E. Masur Paul B. Simon Gordon, Arata, Montgomery, Barnett, McCollam, Duplantis, & Eagan, LLC. COUNSEL FOR DEFENDANTS/APPELLANTS: Anglo-Dutch Energy, L.L.C. Anglo-Dutch (Everest), L.L.C.

          David Paul Bruchhaus Mudd & Bruchhaus COUNSEL FOR DEFENDANTS/APPELLANTS: Anglo-Dutch Energy, L.L.C. Anglo-Dutch (Everest), L.L.C.

          Stephen D. Baker Law Office of Stephen D. Baker COUNSEL FOR PLAINTIFFS/APPELLEES: Frank Hayes Gladney Margaret Ellen Guidrox Holford, in her capacity as independent executrix for the Estate of Margaret Stella Gladney Guidroz

          Larry C. Hebert William H. L. Kaufman Ottinger Hebert, L.L.C. COUNSEL FOR PLAINTIFFS/APPELLEES: Frank Hayes Gladney Margaret Ellen Guidrox Holford, in her capacity as independent executrix for the Estate of Margaret Stella Gladney Guidroz

          Court composed of Elizabeth A. Pickett, D. Kent Savoie, and Candyce G. Perret, Judges.


         In this matter, which initially arose out of a dispute over royalties owed under a mineral lease, Defendants, Anglo-Dutch Energy, L.L.C. and Anglo-Dutch (Everest), L.L.C. (hereinafter collectively "Anglo-Dutch"), appeal the trial court's judgment sustaining Plaintiffs' exception of res judicata and dismissing their reconventional demand, which asserted a claim for fraud. For the following reasons, we affirm.


         The factual background of this case was set forth as follows by this court in connection with a prior appeal:

On August 28, 2009, Plaintiffs [Frank Hayes Gladney and Margaret Stella Gladney[1] granted a mineral lease over [their] land to Anglo-Dutch. That lease provided Plaintiffs were entitled to a one-fifth royalty on all oil, gas or other minerals reduced to possession by Anglo-Dutch from Plaintiffs' land. On February 14, 2012, Anglo-Dutch began a gas well on Plaintiffs' property which was completed on April 27, 2012. The reservoir and zone from which the well was to be produced were under the property of multiple landowners, not just Plaintiffs' land. Anglo-Dutch commenced sales of production from the gas well on May 18, 2012.

         On May 11, 2012, Anglo-Dutch began proceedings to apply for a compulsory drilling and production unit for the well in question by filing a "pre-application notice" with the Louisiana Office of Conservation. A drilling and production unit combines all the land over a reservoir into a single "unit" and allocates all the production from it to the various landowners. The Commissioner of Conservation determines the percentage of production allocated to each landowner. Generally, the percentage corresponds to the proportion of each owner's land in the unit.

It is required that once proceedings to apply for a drilling and production unit are begun, a "conditional allowable" is issued for the well. A conditional allowable is a measure granted by the Commissioner of Conservation that authorized the operator of the well to extract a specific volume of production from a reservoir prior to the establishment of a unit. The conditional allowable ensures that owners of tracts within the unit receive their equitable share of production from the sale of minerals extracted. Anglo-Dutch applied for a conditional allowable on May 15, 2012[.]

         Anglo-Dutch's application for the conditional allowable was granted on May 17, 2012, and Anglo-Dutch began to produce the well the following day.

. . . . On January 23, 2013, Order No. 124-Y was issued establishing the unit. The Order specifically stated it "shall be effective on and after October 30, 2012."

         In letters dated March 5, 2013[, ] and March 18, 2013, counsel for Plaintiffs made demand on Anglo-Dutch for the alleged non-payment of royalties due. Plaintiffs contended despite the October 30, 2012 effective date of the Commissioner's Order, Anglo-Dutch refused to pay Plaintiffs their full one-fifth Lessor's royalty established by the Mineral Lease between the parties for production prior to October 30, 2012. Plaintiffs reasoned, after the October 30, 2[012] effective date, royalties could be paid on the "unit tract" basis, but until that date, they were entitled to their full one-fifth Lessor's royalty. It was admitted by all parties that as of October 30, 2012[, ] moving forward, each owner within the unit was only entitled to the unit production in proportion to their surface acreage contained within the geographic confines of the Unit, and in Plaintiffs['] case, that was slightly over 78%.

Anglo-Dutch maintained Plaintiffs were not entitled to the full lease-basis royalty for pre-Unit production because the issuance of the conditional allowable required them to pay only on a unit-basis. It was their position the issuance of the conditional allowable replaced its obligations under the Mineral Lease between the parties to pay full lease-based royalties.

Gladney v. Anglo-Dutch Energy, L.L.C., 16-468, pp. 3-5 (La.App. 3 Cir. 12/21/16), 210 So.3d 903, 904-05, writ denied, 17-365 (La. 4/13/17), 218 So.3d 120.

         On January 2, 2014, Plaintiffs filed suit against Anglo-Dutch seeking damages in the amount of the alleged unpaid royalties, together with applicable penalties, interest, attorney fees, and costs. Anglo-Dutch filed an Answer asserting various affirmative defenses including "Fault of the Plaintiff/Implied Consent/Implied Contract," wherein Anglo-Dutch argued that Plaintiffs could have raised the royalty issue timely in connection with the conditional allowable proceedings, but rather "Plaintiffs let Defendants proceed, with actual or constructive knowledge of, and impliedly consenting to, Defendants' plans and actions for the well, the unit, and the payment of royalties therefrom."

         Plaintiffs filed a Motion for Summary Judgment on November 3, 2015. Therein, they sought summary judgment rulings that (1) the subject lease obligated Anglo-Dutch to pay Plaintiffs a one-fifth royalty on production attributable to minerals extracted from Plaintiffs' lands; (2) Anglo-Dutch's refusal to pay Plaintiffs the one-fifth royalty was without reasonable cause, constituted a "substantial breach" of the lease, and entitled Plaintiffs to damages measuring double the amount of royalties due, interest, and attorney fees; (3) Anglo-Dutch's bad faith conduct "in wantonly withholding its consent to an agreement that would have permitted [Plaintiffs] to freely negotiate checks representing royalty sums not in dispute" was a breach of "Mineral Code Article 122's 'mutuality principle' and, as a result, [Plaintiffs] are entitled to dissolution" of the lease; and (4) Anglo-Dutch's breaches of the lease entitle Plaintiffs to an accounting for payment of production proceedings.

         Anglo-Dutch filed an opposition to Plaintiffs' Motion for Summary Judgment arguing that because of the conditional allowable, it owed only "unit-basis" royalties through October 30, 2012. It alternatively argued that the actions of Plaintiffs' counsel in connection with the unitization proceedings created an issue of material fact as to what, if anything, Plaintiffs agreed to regarding the payment of royalties. Specifically, Anglo-Dutch argued that Plaintiffs' former counsel, Mr. Phillip Simon, who is now deceased, attended and represented Plaintiffs during the unitization proceedings, and was aware of, and did not object to, Anglo-Dutch's plan to escrow production revenue and pay it on a "unit-basis" once the unitization proceedings concluded. Anglo-Dutch further argued that Plaintiffs' delay in demanding "lease-basis" royalties until ten months after production, despite their counsel's representation during the unitization proceedings, potentially and unfairly resulted in a lucrative windfall of "lease-basis" royalties, plus punitive damages, attorney fees, interest, and other penalties should Plaintiffs' claim for lease cancellation be granted.

         Anglo-Dutch also filed a Cross Motion for Summary Judgment on January 7, 2016, asking the trial court to dismiss Plaintiffs' claims because Anglo-Dutch owed "unit basis" royalties, rather than "lease-basis" basis royalties, in accordance with the conditional allowable, up until the date of unitization, that it fulfilled its obligation to pay "unit-basis" royalties, and Plaintiffs cannot show that they suffered damages as a result of Anglo-Dutch's alleged failures.

         The trial court ruled in favor of Anglo-Dutch, granted its Motion for Summary Judgment, and dismissed Plaintiffs' claims against it. However, on appeal, a panel of this court reversed the trial court's summary judgment in favor of Anglo-Dutch after concluding that the relationship between Anglo-Dutch and Plaintiffs prior to October 30, 2012, was governed by the lease between the parties and Anglo-Dutch's obligation to pay Plaintiffs a one-fifth royalty on all production from the well was modified only by the unitization order's effective date. Gladney, 210 So.3d 903. This court, however, did not render summary judgment in favor of Plaintiffs.

         On October 11, 2017, Plaintiffs filed a Motion for Partial Summary Judgment seeking unpaid "lease-basis" royalties totaling $558, 690.28, plus contractual interest on that amount at a rate of legal interest plus two percent. Plaintiffs further specifically reserved their rights as to all other causes of action including "payment of the unpaid unit basis royalties accruing on or after October 30, 2012, statutory penalties and attorney's fees, prospective ...

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