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L.L.C. v. Tauren Exploration, Inc.

Court of Appeals of Louisiana, Second Circuit

January 15, 2020

GLORIA'S RANCH, L.L.C. Plaintiff-Appellee
v.
TAUREN EXPLORATION, INC., CUBIC ENERGY, INC., WELLS FARGO ENERGY CAPITAL, INC. AND EXCO USA ASSET, LLC Defendant-Appellants

          Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 541, 768 Honorable Ramon Lafitte, Judge

          GORDON, ARATA, MONTGOMERY, ET AL By: Samuel E. Masur Paul B. Simon Counsel for Defendant/Appellant Tauren Exploration

          KEVIN W. HAMMOND, APLC By: Kevin W. Hammond WIENER, WEISS & MADISON By: Jeffrey W. Weiss Counsel for Plaintiff/Appellee Gloria's Ranch, LLC

          WALL, BULLINGTON & COOK, LLC By: Guy E. Wall Paul E. Bullington Maurine Wall Laborde LISKOW & LEWIS By: Michael David Rubenstein Kathryn Z. Gonski Counsel for Defendant/ Appellee Cubic LA, LLC

          Before WILLIAMS, MOORE, and THOMPSON, JJ.

          MOORE, J.

         Tauren Exploration Inc., the principal lessee, appeals a summary judgment that ordered it to pay Gloria's Ranch LLC, the mineral lessor, two-thirds of the damages, penalties and attorney fees for breach of a mineral lease. The case is on remand from the Louisiana Supreme Court to consider all the lessees' virile share liability. Gloria's Ranch LLC v. Tauren Expl. Inc., 2017-1518 (La. 9/7/18), 251 So.3d 392 (on rehearing). For the reasons expressed, we affirm.

         BACKGROUND FACTS (PRIOR PROCEEDINGS)

         In 2004, Gloria's Ranch granted a mineral lease, covering 1, 390 acres, to Tauren. The lease had a term of three years. Tauren performed exploration only down to the Cotton Valley formation. In 2006, Tauren assigned a 49% undivided interest in the lease to Cubic Energy Inc. Close to the end of the lease, in 2007, an operator hired by Tauren drilled three wells on the lease, one of which (the Gloria's Ranch 16-1) was intended to go all the way down into the Haynesville Shale, but it was completed only into the Cotton Valley. In 2008, another operator drilled a horizontal well into the Haynesville Shale on adjacent land that was later unitized with the Gloria's Ranch lease; still later, Tauren granted that operator a top lease. With the exception of the unitized well, none of these produced in paying quantities. In October 2009, Tauren sold its 51% interest in the lease to EXCO USA, but only as to rights below the Cotton Valley.

         In December 2009, Gloria's Ranch sent letters to Tauren, Cubic, EXCO, and their lender, Wells Fargo, asking if the wells were still profitable. In response, Tauren admitted it had "miscalculated" some expenses, but asserted that the wells were still producing. Gloria's Ranch disagreed, and sued all four for failure to comply with Mineral Code Arts. 206 and 207. In August 2014, Gloria's Ranch settled with EXCO.

         Gloria's Ranch then proceeded to a bench trial against the remaining three defendants - Tauren, Cubic, and Wells Fargo. The district court rendered judgment in August 2015, essentially agreeing with Gloria's Ranch. The court found that the lease had indeed expired; the defendants failed to provide a recordable act to that effect; and the three defendants were solidarily liable to Gloria's Ranch. The court fixed damages of $22, 806, 000, penalties of $726, 087, and attorney fees of $936, 803.

         All three defendants appealed. This court affirmed the judgment and awarded Gloria's Ranch additional attorney fees of $125, 000 for having to defend the appeal. Gloria's Ranch LLC v. Tauren Expl. Inc., 51, 077 (La.App. 2 Cir. 6/2/17), 223 So.3d 1202.

         All three defendants applied for writs to the Supreme Court. In an original opinion, the high court held that the lender, Wells Fargo, was not liable as a lessee, under the Mineral Code; reduced the penalty to $484, 058; and reduced the appellate attorney fee to $50, 000. However, it found a "clear admission" that Tauren's management knew of the obligation to pay royalties and did not pay them. It affirmed the solidary liability of Tauren, Cubic, and EXCO. Gloria's Ranch LLC v. Tauren Expl. Inc., 2017-1518 (La. 6/27/18), 252 So.3d 431.

         Tauren applied for rehearing, which was granted in part. The court remanded the case "for the trial court to consider the effect of the reversal of Wells Fargo's liability has on the award, particularly as it relates to the virile share accounted for ...


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