Opinion ID: 1805350
Heading Depth: 1
Heading Rank: 4

Heading: The Hold Harmless Clauses

Text: The vast majority of the leases in this case, except for 12 [13] of the approximately 204 leases alleged by the named plaintiffs to have been taken by Caernarvon, contain hold harmless clauses which legally and validly hold the State harmless from any damages suffered by the oyster fishermen by the operation of this coastal diversion project. As explained below, we hold that the these oyster fishermen's takings claims are precluded by virtue of these hold harmless clauses. In 1989, when DWF became concerned that Caernarvon would alter the salinity levels in the waters covering the oyster leases in Breton Sound, DNR objected to the issuance of oyster leases in Breton Sound or elsewhere in the vicinity of planned coastal restoration projects. However, a compromise was confected by then Chairman of the Louisiana Coastal Restoration Policy Committee, Manual Fernandez, to allow oyster leases to issue as long as they contained a hold harmless and indemnity clause in favor of the state. Thus, instead of not issuing any more leases on the basis that these leases would not be capable of supporting oyster populations under the authority of La. R.S. 56:428(A), DWF inserted a hold harmless clause into all leases issued after 1989, which cover 140 of the 204 leases in this case. It was only with this clause that the oyster leases were allowed to issue, which was solely for the benefit of the oyster industry. This 1989 hold harmless clause stated: This lessee hereby agrees to hold and save the State of Louisiana, its agents or employees, free and harmless from any claims for loss or damages to rights arising under this lease, from diversions of fresh water or sediment, depositing of dredged or other materials or any other actions, taken for the purpose of management, preservation, enhancement, creation or restoration of coastal wetlands, water bottoms or related renewable resources; said damages to include, but not to be limited to, oyster mortality, oyster disease, damage to oyster beds or decreased oyster production, due to siltation, pollution or other causes. All leases issued between 1989 and 1995 contain the same clause while leases issued from July 1995 to the present contain even more detailed indemnity clauses, namely the Coastal Wetlands Restoration Advisory Clause [14] and the Allocation of Risk and Liability, and Indemnity Clause. [15] These clauses were inserted into the leases given the fact that several suits had been filed as of 1995 by various oyster leaseholders alleging damages as a result of freshwater diversion structures (including this suit), and more were expected. These clauses were also in accordance with Legislative amendments in 1995 to the existing coastal restoration statutes requiring that the State be held harmless regarding coastal restoration in an effort to promote coastal restoration for the good of the public. [16] All leases issued from July 1995 to present contain the Coastal Wetlands Advisory Clause and the Allocation of Risk and Liability and Indemnity Clause, which include 53 of the approximately 64 leases remaining in this case. In spite of the undisputed fact that the language of the 1989 clause is clear on its face and explicitly releases the State from any liability to the oyster fishermen due to this diversion project, the court of appeal found that our prior decision in Jurisich v. Jenkins, 99-0076 (La.10/19/99), 749 So.2d 597, dictates the conclusion that the unilateral insertion of the 1989 hold harmless clauses are legally invalid. 858 So.2d at 706. As to the post-1995 hold harmless clauses, the court of appeal recognized a 2000 statutory amendment that purportedly permitted the State to insert indemnity clauses into oyster leases, 2000 La. Acts No. 107, and that applied to oyster leases renewed or extended after July 1, 1995, but did not consider the validity of the post-1995 indemnity provisions because it found that none of the leases at issue in this case were dated after July 1, 1995. [17] These holdings are erroneous, as Jurisich does not compel the conclusion that the types of indemnity provisions in plaintiffs' leases are legally invalid, and the evidence presented clearly showed that 53 leases were renewed between 1996 and 1998 that contained the more detailed indemnity clause. The issue in Jurisich was whether the DWF could refuse to renew oyster leases unless the oyster lessees agreed to the inclusion of a navigation and oil field activity clause, which made the oyster leases subservient to navigation, maintenance of navigation, and all normal, usual and permissible mineral and oil field activity which has been sanctioned by the State of Louisiana through a prior existing lease, permit, or contract. While the State had included other clauses in the leases at issue in that case, including the Coastal Wetlands Advisory Clause and the Allocation of Risk and Liability and Indemnity Clause, the Court expressly did not address the validity of these clauses. 749 So.2d at 599, 605 n. 8. Indeed, following an application for rehearing, this Court emphasized that its discussion of the authority of the Secretary [of the DWF] and its ultimate holding were restricted to the inclusion of the navigation and oil field activity clause. Id. at 610. Accordingly, we expressly reserved the issue of whether that holding could be extended to other types of indemnity clauses, including in particular, the 1996 clauses at issue in this case. Jurisich recognized that the statutory laws relative to the leasing of water bottoms for oyster production differ from the provisions that govern ordinary conventional leases addressed in Title IX of Book II of the Civil Code, La. C.C. arts. 2668, et seq. Jurisich, supra at 600 (citing Vujnovich v. Louisiana Wildlife and Fisheries Commission, 376 So.2d 330 (La.App. 4 Cir.1979)). [18] The Court found that the discretion the DWF has to renew an oyster lease is therefore limited by a determination of the lease's capability of supporting oyster populations under La. R.S. 56:428(A), and that legislative, or statutory, authority was necessary for an expansion of that authority. Id. at 601. The Court found that the legislative authority found in La. R.S. 56:425(C), which provides that the [DWF] may make such stipulations in the leases made by him as he deems necessary and proper to develop the industry; however, these stipulations must be consistent with the provisions of this Subpart, did not grant the DWF authority to include the navigation and oil field activity clause. One reason for this holding was the Court's finding that the State was obligated to give the oyster lessees the first right of renewal of their leases under La. R.S. 56:428(A), provided the lease is capable of supporting oyster populations. As there was no showing that the lessees were incapable of supporting oyster populations, the State was found to have no right to fail to renew them by adding an onerous clause. This case is distinguishable from Jurisich as the State may very well have been able to show that the leases would become incapable of oyster production after Caernarvon became operational and could have refused to renew the leases on that basis. However, as discussed above, rather than do this, as a compromise the State inserted the hold harmless clauses in 1989. Another reason for the Jurisich court's holding that La. R.S. 56:425(C) did not give the DWF the right to include the navigation and oil field activity clause in the lease was that the clause was not necessary and proper to develop the oyster industry as it abrogated the oyster lessees' rights under La. R.S. 56:423(B)(1) to sue third parties for negligent or wrongful injury to their leases. [19] Id. at 602-03. Therefore, La. R.S. 56:425(C) did not provide the DWF with the needed legislative authority to add the clause into the lease. The hold harmless clauses applicable in this case, on the other hand, contain stipulations that are necessary and proper to develop the oyster industry as a whole, as: (1) the clauses allowed oyster lessees, if they chose to continue to lease the property in spite of the coastal restoration efforts, to effectively risk that at some point the leases may be productive and to reap whatever other economic gains they could resulting from their status as lessees; (2) the clauses allowed the Caernarvon project to proceed without fear of economic disaster from lawsuits; (3) the Caernarvon project greatly improved oyster production on the public seed grounds; and (4) Caernarvon returned the area of productive oyster producing grounds to those which existed before the levee system began the coastal erosion process. The fact that certain leases became unproductive does not render the clauses unnecessary and improper for the development of the oyster industry. Further, unlike the situation in Jurisich, where the clause at issue was found to be invalid because it abrogated the lessees rights to sue third parties under La. R.S. 56:423(B), in this case, only the rights vis-a-vis the lessor and lessee are involved and the rights granted in La. R.S. 56:423(B) have never been recognized by this Court as anything other than rights granted against third parties to the leases, such as oil companies, not against the State. [20] Finally, the Court in Jurisich rejected DWF's argument that the public trust doctrine allowed them to insert the clause into the leases. Id. at 604-06. La. Const. art. IX, § 1 provides, in pertinent part: The natural resources of the state, including air and water, and the healthful, scenic, historic, and esthetic quality of the environment shall be protected, conserved, and replenished insofar as possible and consistent with the health, safety, and welfare of the people. The legislature shall enact laws to implement this policy. The Jurisich court noted that this Court in Save Ourselves, Inc. v. Louisiana Environmental Control Com'n, 452 So.2d 1152, 1157 (La.1984), has interpreted that article as follows: This is a rule of reasonableness which requires an agency or official, before granting approval of proposed action affecting the environment, to determine that adverse environmental impacts have been minimized or avoided as much as possible consistently with the public welfare. Thus, the constitution does not establish environmental protection as an exclusive goal, but requires a balancing process in which environmental costs and benefits must be given full and careful consideration along with economic, social and other factors. Id. at 604-605. In Jurisich, as the stipulated purpose of the clause at issue, i.e., to protect oil and gas companies from claims by oyster lessees was clearly not mandated by the public trust doctrine, the Court rejected the DWF's argument in that regard. Id. Further, as the Constitution vests primary responsibility for implementing the public trust in the State legislature, the clause could not stand because it was contrary to state legislation. The Court also specifically noted that [i]n reaching this conclusion on the application of the public trust doctrine, we note that our determination is made in the context of the Secretary's duty to develop the oyster industry and is only made relative to the inclusion of the navigation and oil field activity clause, the only clause in the oyster lease now before us. Id. at 605 n. 8. We find that the implementation of the Caernarvon coastal diversion project fits precisely within the public trust doctrine. The public resource at issue is our very coastline, the loss of which is occurring at an alarming rate. The risks involved are not just environmental, but involve the health, safety, and welfare of our people, as coastal erosion removes an important barrier between large populations and ever-threatening hurricanes and storms. Left unchecked, it will result in the loss of the very land on which Louisianians reside and work, not to mention the loss of businesses that rely on the coastal region as a transportation infrastructure vital to the region's industry and commerce. The State simply cannot allow coastal erosion to continue; the redistribution of existing productive oyster beds to other areas must be tolerated under the public trust doctrine in furtherance of this goal. See La. C.C. art. 450 and Comment (b) (stating that navigable water bodies are public things that belong to the State, and that such property is dedicated to public use, and held as a public trust, for public uses.) For all of the above reasons, the decision in Jurisich is clearly distinguishable from the case at bar, and does not make the hold harmless clauses inserted in 193 of the approximately 204 leases as early as 1989 legally invalid. We find that they are legally valid and clearly enforceable under the authority granted the DWF in La. R.S. 56:425(C). No further legislative authority was needed to validate these indemnity clauses, and we therefore have no need to delve into the possible retroactivity of the subsequent statutes which mandate the inclusion of these clauses into oyster leases. [21] The claims covered by the leases that contained the 1989 indemnity clause are invalid, for either takings or damages, because these claims were filed in 1994 after these indemnity clauses were in effect. Likewise, the plaintiffs holding leases containing the more detailed indemnity clauses do not have valid takings or damage claims, even though this suit was filed in 1994 and these leases are dated July 1995 and later for the following reasons. First, it is under these leases that these plaintiffs claim their lease rights were taken by the State, as these were the leases offered into evidence by plaintiffs to prove their case. Second, these plaintiffs claim their leases were rendered permanently useless for commercial oyster production, which necessarily includes the time period covered by these post-1995 clauses. Had these plaintiffs claimed damage to their leases from the time Caernarvon began operation to the time they signed new leases with the post-1995 indemnity clauses, and had they alleged and proven specific monetary damages during this time period, they theoretically would have valid property damage claims. However, this was not the case they chose to make. Thus, the named plaintiffs holding 192-193 of the approximately 204 leases in this case do not have valid takings claims because the indemnity clauses in their leases hold the state harmless from any and all claims for loss or damage to their rights under the leases caused by this coastal diversion project. [22] However, the named plaintiffs introduced into evidence 12 leases that are dated prior to 1989. Thus, because these lessees' takings claims are not precluded by virtue of any indemnity clauses, we must continue this analysis, which is applicable only to these remaining 12 leases.