Opinion ID: 65802
Heading Depth: 2
Heading Rank: 2

Heading: Indispensable Parties Motion

Text: In the district court, the lease owners moved to dismiss Doré's complaint for failure to join indispensable parties. See Fed. R.Civ.P. 12(b)(7). These allegedly necessary parties are the overriding royalty interest owners whose rights to payment from production is derived from the lease that the suit would largely cancel. Federal Rule of Civil Procedure 19 allows both for the joinder of parties who should be present in order to have a fair and complete resolution of the dispute, and for the dismissal of lawsuits that should not proceed in the absence of parties that cannot be joined. HS Res., Inc. v. Wingate, 327 F.3d 432, 438 (5th Cir.2003) (citations omitted). The lease owners argued that the overriding royalty interest owners are indispensable and acknowledged that because many are Louisiana residents, diversity jurisdiction would be at an end. The motion was denied. We review the denial of such a motion for possible abuse of discretion. Brown v. Pac. Life Ins. Co., 462 F.3d 384, 393 (5th Cir.2006). Because this suit is in federal court based on diversity jurisdiction, we apply Louisiana substantive law and federal procedural law. The district judge issued a separate memorandum ruling on the indispensable parties motion. The initial and fairly brief finding was that the only indispensable parties in this suit over the meaning of the settlement agreement were those who executed it. It was not put in these terms by the district judge, but the point could be extended by noting that the settlement agreement had already affected the overriding royalty owners by releasing substantial acreage from the lease in 2002, and setting up a process to release more in 2005. It did seem a bit late in the day to become aware of their interests. The district court spent much more time in the ruling on the delay in bringing this issue before the court. The court found that discretion existed in ruling on the motion. Unreasonable delay and even bad faith were found to exist in the lease owners' filing of the motion only after partial summary judgment was entered against them. On appeal, there are lengthy discussions in the briefs on various facets of this issue. We find most of them unnecessary to engage. The basic question is whether this suit affects any rights of the overriding royalty owners. Their interests have been similarly affected by every cancellation of parts of the lease through the years. In previous litigation, the right of the lease owner to release acreage without the consent of the overriding royalty owners was contested. Cameron Meadows Land Co. v. Bullard, 348 So.2d 193 (La.Ct.App.1977). In analyzing the issue, the court concluded that the assignment of the lease and retention of an overriding royalty was a sublease under Louisiana law. Id. at 198. Nonetheless, the court found that the sublease from Henshaw in 1927, shortly after the oil and gas lease was executed, granted to the sublessors/assignees the right to release acreage without the approval of Henshaw or his successor owners of the overriding royalty interests: We construe the 1927 sublease agreement, in light of its provisions and the actions of the parties thereunder for a period in excess of 43 years, and conclude that it was clearly the intention of the parties thereto that the Sub-lessee, its successors or assigns, was granted the right thereunder to effectively release all or any part of the leased acreage. Id. at 199. The court went on to hold that any overriding royalty interests in the released portions of the land were terminated. Id. at 200. Another much more recent case cited to us also concerns this same lease. See Doré Energy Corp. v. Carter-Langham, Inc., 997 So.2d 826 (La.Ct.App.2008). The court found that a jury could have reasonably concluded that the predecessors to the current lease owners held an assignment, not a sublease. Under the 1977 Bullard decision we just discussed, the court had already held that a sublessee under this lease could release land without the overriding royalty owners' consent. Under Louisiana law, an assignee acquires all the rights of the lessee, which would include the right to surrender parts of the lease. See La.Rev.Stat. Ann. § 31:128. Therefore, regardless of whether this is a sublease or an assignment, the lease owners can surrender the leased land without it reverting back to the overriding royalty interest owners. Such a ruling certainly suggests that the overriding royalty interest owners, subject to the unchallengeable decision making by the lease owners on whether to release or not, could not sue to block enforcement of a settlement agreement by the lease owners to execute releases. The somewhat different question here is whether, when the lease owners are being sued by the mineral owners to cancel most of the remaining portion of the lease, the overriding royalty owners have a right to participate in presenting the argument that the lease is still in effect to the maximum defensible degree. Such a role is not challenging the discretion of the lease owners. It is a participation alongside them in defending the lease. Such nice points of distinction will not affect our resolution. Regardless of whether there is some legitimacy to the lease owners' argument, the reality is that joinder of the overriding royalty interest owners would deprive the federal court of diversity jurisdiction. See Fed.R.Civ.P. 19(a)(1). When joinder of a required party is not feasible, the district court must consider whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed. Id. at 19(b). Among the factors listed in the rule for consideration are whether the absence of the identified parties would prejudice either them or the litigants, and whether a judgment entered with the existing cast of parties would be adequate. Id. at 19(b)(1), (3). Apparently in an effort to remove this issue, Doré entered an agreement that purports to be with all the overriding royalty interest owners. It provides that should any additional acreage under the 1927 be released, Doré agreed that the current overriding royalty interest owners would continue to be entitled to the same payments out of production. In effect, the overriding royalty interest owners no longer even have a stake in the outcome of this litigation, regardless of whether they have a legal right to participate. The lease owners argue that Doré has attempted to paper over a defect in federal jurisdiction arising from the absence of the overriding royalty interest owners in the case. We find no bar to a party's eliminating, even with paper, an issue such as this. The factors under Rule 19(b) are concerned with whether actual harm to anyone's interests will occur if the case proceeds absent certain parties. This papering over removed any possible actual financial impact on the overriding interest owners. We find no abuse of discretion in denying the motion to join these parties.