United States Court of Appeals

Fifth Circuit



## FILED

March 24, 2004

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

For the Fifth Circuit

___________________________

No. 03-30602

___________________________

CHEVRON USA, INC.

Plaintiff - Counter Defendant - Appellee

v.

VERMILION PARISH SCHOOL BOARD

Defendant - Counter Claimant - Appellant

___________________________

TEXACO INC; TEXACO EXPLORATION & PRODUCTION, INC.

Plaintiffs - Counter Defendants - Appellees

v.

VERMILION PARISH SCHOOL BOARD

Defendant - Counter Claimant - Appellant

___________________________

AMERADA HESS CORP.

Plaintiff - Counter Defendant - Appellee

v.

VERMILION PARISH SCHOOL BOARD

Defendant - Counter Claimant - Appellant

___________________________

UNION OIL COMPANY OF CALIFORNIA

Plaintiff - Counter Defendant - Appellee

v.

VERMILION PARISH SCHOOL BOARD

Defendant - Counter Claimant - Appellant

___________________________

MOBIL OIL CORP; MOBIL OIL EXPLORATION & PRODUCING SOUTHEAST, INC.2 Plaintiff - Counter Defendant - Appellees

v.

VERMILION PARISH SCHOOL BOARD

Defendant - Counter Claimant - Appellant

___________________________

EXXON MOBIL CORP.

Plaintiff - Counter Defendant - Appellee

v.

MARSHALL W. GUIDRY

Defendant - Counter Claimant - Appellant

___________________________

EXXON MOBIL CORP.

Plaintiff - Counter Defendant - Appellee

v.

VERMILION PARISH SCHOOL BOARD

Defendant - Counter Claimant - Appellant

Appeal from the United States District Court

for the Western District of Louisiana, Lafayette and Opelousas Division

Before DAVIS, BARKSDALE and PRADO, Circuit Judges.

PER CURIAM:

CERTIFICATION FROM THE UNITED STATE S COURT OF APPEALS FOR THE

FIFTH CIRCUIT TO THE SUPREME COURT OF LOUISIANA, PURSUANT TO RULE XII OF

THE RULES OF THE SUPREME COURT OF LOUISIANA.

TO THE SUPREM E COURT OF LOUISIANA AND THE HONORABLE JUSTICES3

THEREOF:

I. STYLE OF THE CASE

The style of the cases in which certification is made is Chevron U.S.A., Inc., Plaintiff -

Counter Defendant

- Appellee, versus Vermilion Parish School Board, Defendant

- Counter Claimant

- Appellant; Texaco, Inc.; Texaco Exploration & Production, Inc., Plaint iffs

- Counter Defendants

-

Appellees, versus Vermilion Parish School Board, Defendant

- Counte r Claimant - Appellant;

Amerada Hess Corp., Plaint iff

- Counter Defendant

- Appellee, versu s Vermilion Parish School

Board, Defendant

- Counter Claimant

- Appellant; Union Oil Company of Californ ia, Plaintiff -

Counter Defendant

- Appellee, versus Vermilion Parish School Board, Defendant

- Counter Claimant

- Appellant; Mobil Oil Corp.; Mobil Oil Exploration & Producing Southeast, Inc.,

Plaint iff

- Counter Defendant

- Appellee, versus Vermilion Parish School Board, Defendant

- Counter

Claimant

- Appellant; Exxon Mobil Corp., Plaint iff

- Counter Defendant

- Appellee, versus Marshall

W. Guidry, Defendant - Counter Claimant

- Appellant; and Exxon Mobil Corp., Plaintiff - Counter

Defendant

- Appellee, versus Vermilion Parish School Board, Defendant - Counter Claimant -

Appellant. This case involves a determinative question of state law; federal jurisdiction is based solely

on diversity of citizenship.

II. STATEMENT OF THE CASE

A. Background

In 1999, counsel for the Vermilion Parish School Board and counsel for Marshall W. Guidry

(the “Royalty Owners”) sent individual demand letters to Chevron USA, Inc., Texaco, Inc., Amerada

Hess Corporati on, Union Oil Company of California, Mobil Oil Corporati on, and Exxon Mobi l

Corporati on (the “Oil C o mpanies”) pursuant to Mineral Code Article 137. La. R.S. 31:137. The4

letters stated that they were sent on behalf of the Royalty Owners and “all similarly situated royalty

owners

- all royalty and overriding royalty owners to whom you pay gas royalties in Louisiana.” Both

letters demanded payment of unpaid royalties due on natural gas liquids ( “NGLs”) the Oil Companies

allegedly underpaid as a result of using a “lease/plant split instead of the reasonable and actual costs

of pro cessing NGLs” and for “liquids that you pulled out of the gas stream and did not use to

compute royalties at all.”

In 2000, counsel for the Royalty Owners again sent individual demand letters to the Oil

Com panies. Like the first letters, counsel stated that they were writing on behalf of the Royalty

Owners and “all similarly situated royalty owners

- all royalty and overriding royalty owners to whom

you pay dry gas royalties on producti on in Louisiana.” The letters demanded payment of underpaid

dry gas royalties as a result of the Oil Companies computing royalties “using prices that understated

the price actually available in true arms length sales.” After each Oil Company responded to

the demand letters, each filed a separate decla rat o ry judgment action in federal court seeking a

determination that it had no liability to the Royalty Owners. The Royalty Owners filed answers and

also a counterclaim “individually and as representatives of a class of all ot h ers similarly situated”

against each of the Oil Companies complaining of underpayment of royalties on NGLs and dry gas

production. All cases were consolidated.

The putative class as defined would include all royalty and overriding royalty interest owners

in all Louisiana mineral leases owned by the Oil Companies whose royalties have been computed

using either of the two methods challenged by the Royalty Owners. The Royalty Owners concede

that the class would number in the thousands.

The parties filed Cross Motions for Partial Summary Judgment on the issue of whether the5

demand letters written by counsel for the individual Royalty Owners to the Oil Companies satisfied

the requirements of Louisiana’s Mineral Code for members of the putative class. The district court

held that the demand letters were “legally insufficient to serve as written notice on behalf of unnamed

royalty owners under Article 137 of the Louisiana Mineral Code.” C hevron USA, Inc. v. Vermilion

Parish School Bd.

, 128 F.Supp.2d 961, 968 (W.D. La. 2001). The district court based its decision

first on the plain language of Article 137 which provides: “.

. . if a mineral lessor seeks relief for the

failure of his lessee to make t imely or proper payment o f ro yalties, he must give his lessee written

notice of such failure as a prerequisite to a judicial demand for damages or dissolution of the lease.”

The court found that “by its own terms, ‘He must give his lessee written notice’, the notice required

by Article 137 must be individualized.” 128 F. Supp.2d 961, 967 (W.D. La. 2001). The court

explained that under the statutory scheme, after the Article 137 demand has been made, the lessee

has 30 days to either pay the royalties due or respond in writing and state a reasonable cause for nonpayment. La. Mineral Code Art. 138; La.R.S. 31: 138. Only if the lessee fails to pay or provide a

reasonable explanation fo r its failure to pay, does the dissolution of the lease become a possible

remedy. Relying on the official comment to Articles 137-141, the court stated: “The device of notice

is merely to inform the lessee he has not paid royalt ies deemed by the lessor to be due. The total

effect of the articles is to provide an impetus to t imely payment of royalties due, while giving lessees

a reasonable way in which to avoid the harsh remedy of cancellation. It also affo rds the lessee an

opportuni ty t o evaluate a non-payment situation and to make a decision regarding whether the

royalties allegedly due should be paid.”

After reviewing the case law from the intermediate Louisiana Courts of Appeals, the district

court concluded that the decision of the Louisiana First Circuit Court of Appeals in Stoute v. Wagner6

& Brown

, 637 So.2d 1199 (La. App. 1 Cir. 1994), was correct in its interpretation of Article 137,

and distinguished another case from the Louisiana First Circuit, L ewis v. Texaco Exploration and

Production Co., Inc. , 698 So.2d 1001 (La.App. 1 Cir. 1997).

The Royalty Owners appealed. This court dismissed the appeal fo r lack of jurisdiction

because “the district court made no ruling that was binding on the appellants individually

. . . it merely

ruled that the letters were insufficient as to claims on behalf of a putative class (royalty owners not

named in the letters) that did not include the appellants.” C hevron USA, Inc. v. Vermilion Parish

School Bd. , 294 F.3d 716, 719-20 (5th Cir. 2002).

On remand, the Royalty Owners filed requests for discovery to which the Oil Companies

o bjected. The Oil Companies filed a Motion to Deny Class Certification and for Partial Summary

Judgment seeking dismissal of the class claims. The district court granted the motions to deny class

certification on the basis of its 2001 “ruling that the demand letters were not effective under Article

137 as to the putative class and the members of t he put at ive class have no right of action under

Article 137.” Because the district court denied class certification, it did not rule on the motion for

partial summary judgment. The royalty owners then lodged this appeal.

B. Relevant Caselaw

The issue presented is whether the notice given in this case by counsel for a lessor on behalf

of a class of similarly situated royalty owners satisfies the requirements of Louisiana Mineral Code

Articles 137 to 141, requiring the lessor to give written notice of a lessee’s failure to make t imely or

proper payment of royalties as a prerequisite t o judicial demand for damages or dissolution of the

lease. No decisions of the Louisiana Supreme Court directly address this question. Decisions of

Louisiana Appellate Courts are conflicting.7

In Stoute v. Wagner & Brown

, 637 So.2d 1199 (La. App . 1 Cir. 1994), plaintiff mineral

lessors and royalty o wners in the Moore-Sams Field in Pointe Coupee Parish sued the defendant

p ro duction companies on their own behalf and on behalf of all similarly situated persons to obtain

payment of royalties improperly withheld. The issue before the court was whether the class should

be certified. The trial court decided preliminarily that “only those royalty owners who have written

a demand for past royalties may sue their gas producers.” 637 So.2d at 1201. The Louisiana First

Circuit affirmed the district court’s denial of class certification because of lack of commonality (many

different contracts involved raising many different rights, remedies and defenses) and because it would

not be more efficient to try the case as a class action (36% of the interests had filed suit separately).

Although the Stoute case did not expressly consider whether a class demand letter satisfies Article

137, it broadly approved the trial court’s opinion. “We are convinced that the reasons enunciated by

the [trial] court are correct and we affirm, adopting the trial court’s opinion as our own.”

In Lewis v. Texaco Exploration and Production Co., Inc.

, 698 So.2d 1001 (La. App. 1 Cir.

1997), a divided panel addressed the issue more directly. In Lewis , plaintiff mineral lessors in the

Hollywood Field in Terrebonne Parish sought to certify a class for their action for royalties due on

take or pay settlements from the defendants. Five representative claimants had sent demand letters

pursuant to Article 137 on behalf of all Hollywood Field royalty owners. Defendant Texaco objected

on the basis that the Mineral Code did not allow class demand letters. Addressing whether the class

demand letter was sufficient to satisfy the requirements of Article 137, the panel majority stated:

The Mineral Code does not contain any s pecific guidelines as to the precise

requirements of the formal written demand set forth in LSA-R.S. 31:137, but requires

only that the lessor “give his lessee written notice of such failure” to make t imely and

proper payment of royalties.

. . . Nowhere in the statute is there a requirement that a

notice be given by each and every mineral lessor individually. The use of the word8

“he” in LSA-R.S. 31:137 is not indicative of any legislative intent that each individual

lessor provide such notice. The use of the masculine term is equally applicable to the

feminine, and the use of the singular is likewise applicable to the plural. LSA-R.S. 1:7

and 8.

698 So.2d at1009 (internal citations omitted). Judge Parro, in his dissent stated: “This statute [Art.

137] is clear and unambiguous. It requires that each lessor give written notice to his lessee based on

the individual contractual relationship between the lessor and lessee. It does not authorize one lessor

to give notice on behalf of another unidentified or named lessor.”

In Duhe v. Texaco, Inc.

, 779 So.2d 1070 (La. App. 3 Cir. 2001), the Louisiana Third Circuit

accepted the Lewis panel majority’s analysis. In D uhe

, the royalty owners claimed underpayment of

oil royalties by Texaco and its pro ducing affiliate TEPI by valuing the amounts due the royalty

owners on self-dealing , lo w-priced transfers of their oil from TEPI to another Texaco subsidiary,

rather than at market value. The class consisted of approximately 7,000 oil and condensate royalty

owners in the State of Louisiana. As to the defendant s’ assignment of error, that notice was

inadequate under Article 137, the court relied on the analysis in Lewis

. The court stated that nothing

in the statute requires that notice be given by each mineral lessor individually. Rather, it is “sufficient

if the notice fully and completely notifies the lessee of the demands of the named plaint iffs, as well

as the intention of those named plaint iffs to demand royalty payments on behalf of a class of royalty

owners.” Id. at 1087.

Because the issue of the propriety of class notice under Article 137 of the Louisiana Mineral

Code is clearly a matter of Louisiana law and because there are conflicting rulings on this point by

the Louisiana Courts of Appeal with no ruling by the Louisiana Supreme Court, we hereby invoke

the certification privilege granted by Rule XII of the Louisiana Supreme Court Rules.9 III. QUESTION CERTIFIED

We certify the following question to the Louisiana Supreme Court:

Whether the notice given in this case by counsel for a lessor on behalf of the putative

class satisfies the requir ement o f Articles 137-141 of the Louisiana Mineral Code,

requiring the lessor to give written notice of t he lessee’s failure to make timely or

proper payment of royalties as a prerequisite to a judicial demand for damag es or

dissolution of the lease.

IV. CONCLUSION

We disclaim any intent that the Louisiana Supreme Court confine its reply to the precise form

or scope of the legal question we certify. The answer provided by the Louisiana Supreme Court will

determine a dispositive issue in this case. We transfer to the Louisiana Supreme Court the record and

appellate briefs in this case with our certification.

We CERTIFY the question stated to the Louisiana Supreme Court.