Opinion ID: 45960
Heading Depth: 2
Heading Rank: 1

Heading: TEPI’s Breach of the Right of First Refusal

Text: The right of parties to contract for a “right of first refusal” has been recognized by Louisiana 7 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 8 Duckett v. City of Cedar Park, Texas, 950 F.2d 272, 276 (5th Cir. 1992). 9 Allen v. Rapides Parish Sch. Bd., 204 F.3d 619, 621 (5th Cir. 2000). 10 The federal courts are empowered by 28 U.S.C. § 1332 to hear this suit as the parties to it are diverse and the amount in controversy exceeds $75,000. Under the holding of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817 (1938) and Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 61 S. Ct. 1020 (1941), we must apply Louisiana’s obligations and mineral law. 15 courts for some time.11 In 1993, the jurisprudence was codified by the Louisiana Legislature in Louisiana Civil Code articles 2625 and 2626. Article 2625 provides: A party may agree that he will not sell a certain thing without first offering it to a certain person. The right given to the latter in such a case is a right of first refusal that may be enforced by specific performance. Article 2626 provides: The grantor of a right of first refusal may not sell to another person unless he has offered to sell the thing to the holder of a right on the same terms, or on those specified when the right was granted if the parties have so agreed. It is apparent that the driving intent of the four JOAs was to provide appellants with a right of first refusal. What is at issue regarding the breach of the ROFRs is as follows: 11 Ebrecht v. Pontchatoula Farm Bureau Assoc., Inc., 498 So.2d 55 (La. App. 1st Cir. 1986); Crawford v. Deshotels, 359 So.2d 118 (La. 1978); Price v. Town of Ruston, 171 La. 985, 132 So. 653 (La. 1931). 16 (1) the “thing” that is the subject of the ROFR under Article 2625; (2) whether TEPI clearly and unambiguously described the property offered to appellants in its March 1, and April 26, 2000 offer letters; (3) whether TEPI offered the same “thing” to appellants, the holder of the right, on the same terms, before selling to Ener Vest
According to Article 1983, “Contracts have the effect of law for the parties....” Therefore, to determine the “thing” upon which the right of first refusal was granted, we must turn to the language in each of the four JOAs. A. The 1962 JOA The 1962 JOA provides: Before the sale to a third party by any Operating Party of its interest, in whole or in part, in the properties affected by this agreement, the other Operating Parties shall 17 be given the refusal thereof at the best price offered in good faith by a third party, and such other Operating Parties shall have the preferred right to purchase at the price stated, which right shall be exercised within thirty (30) days after receipt of written notice of the offer made by a third party.... It is self-evident that the 1962 JOA extends appellants’ ROFR to TEPI’s entire working interest in its mineral leases subject to that JOA. The text of that agreement provides, “before the sale to a third party...of its interest...in the properties affected by this agreement.” (Emphasis added). TEPI violated the August 29, 1962 JOA by failing to offer the entirety of its interest in the property affected by the JOA to the Fordoche group, yet thereafter selling the entirety to a third-party buyer, EnerVest. The April 26, 2000 offer letter states, The following facilities are either owned entirely by TEPI, or if jointly owned, not subject to any preferential right to purchase. These facilities will be conveyed to EnerVest. Additionally, none of the rights of way, pipeline 18 rights of way and surface leases listed on Schedule B to the Agreement are subject to the preferential right to purchase. As your preferential right to purchase does not include all facilities or any rights of way, should you elect to exercise your preferential right to purchase, you will need to enter into a production handling agreement with EnerVest. Thereafter, TEPI lists eleven tangible properties that are excluded from the appellants’ ROFR. This April 26, 2000 letter indicates that TEPI was offering to sell the Fordoche group something less than TEPI’s entire working interest under the 1962 JOA. In fact, the district court in its reasons for summary judgment and TEPI in its brief in this court assert that the ROFR in the 1962 JOA only grants to each party the preferential right to purchase a departing party’s interest in the unitized substances. However, the 1962 JOA clearly and unambiguously provides to the contrary The ROFR extends to all of each party’s property interests affected by the JOA; that plainly includes each party’s undivided interest in the tangible and 19 intangible assets acquired and employed for the operation of the production unit, as well each party’s rights as a mineral lessee or owner of another mineral interest. The ROFR is certainly not limited to each party’s interest in the unitized substances according to a plain reading of the 1962 JOA. The April 26, 2000 letter illustrates that TEPI offered to appellants an opportunity to exercise preferential rights on only some of TEPI’s interests in the properties affected by the August 29, 1962 JOA. In contrast, TEPI offered and sold to EnerVest the entirety of its interest. This differentiation directly contravenes the JOA which requires that, “...Before the sale to a third party by any Operating Party of its interest, in whole or in part, in the properties affected by this agreement, the other Operating Parties shall be given the refusal thereof at the best price offered in good faith by a third 20 party.” (Emphasis added). Had TEPI offered its entire working interest to the appellants and had appellants purchased it, they would have had the right, under the 1962 JOA, to elect the successor operator to the vacancy left in that position by the departure of TEPI, and thereby to take control of the production unit subject to that JOA.