Opinion ID: 1614914
Heading Depth: 1
Heading Rank: 2

Heading: Facts Regarding Acquisition of Mineral Interests

Text: Both the Grand Prairie Levee District and the Buras Levee District had acquired their public lands through acts of the Louisiana Legislature. [11] The overriding mineral royalty interests which are in dispute in this litigation were derived from three leases (base leases), one granted by the Grand Prairie Levee District, and two by the Buras Levee District, to Delta-Louisiana, in 1936 and 1938, respectively. The three leases essentially covered a vast majority of the Plaquemines Parish lands owned and administered by the two boards. As has been noted, when the base leases were granted to Delta, Judge Perez was the District Attorney for the Twenty-Fifth Judicial District, which then consisted of the Parishes of Plaquemines and St. Bernard. As District Attorney, Judge Perez was the ex-officio regular attorney and legal counsel for all levee districts within his judicial district. His judicial district included the Grand Prairie Levee District and the Buras Levee District in Plaquemines Parish. As has been noted, the lessee in all transactions involving the mineral leases was Delta Development Co., Inc. [12] Delta was formed as a Louisiana corporation in 1934. The initial shareholders noted in Delta's records were Robert J. Lobrano and Robert J. Chauvin (500 shares each) and Harold Sicard (1 share). At the trial of the exceptions, it was stipulated that on December 20, 1938, par value stock certificates numbered 4, 5, 6 and 7 of Delta-Louisiana were issued to R.J. Chauvin for a total of [495 of 511] outstanding shares for the account of Mrs. L.H. Perez. These certificates replaced no par value stock certificate number five of Delta-Louisiana, which was then held by Mrs. L.H. Perez. [13] In 1941, Delta-Louisiana transferred all of its assets to a new Delaware corporation, Delta Development Co., Inc., same name, with its principal office in Bay St. Louis, Mississippi. Mrs. Leander Perez, Sr. received the same percentage of shares in this new corporation. [14] In a further stipulation entered during the trial on the exception, the defendants admitted that all of the previously referred to shares of Delta-Delaware were donated by Mrs. L.H. Perez in acts joined in by L.H. Perez as her partner in community by acts not contained in the public records but referred to in the records of Delta-Delaware, to their children, L.H. Perez, Jr., Chalin O. Perez, Joyce Perez Eustis, and Betty Perez Carrere by separate acts dated in 1944. The acts of donation were not filed in the Plaquemines Parish Clerk of Court's conveyance records. On July 20, 1936, the Board of Commissioners of the Grand Prairie Levee District executed a mineral lease in favor of Delta-Louisiana. The Grand Prairie Levee District purportedly received a $300 cash bonus and a 1/8 royalty for granting the lease. The 1/8 royalty was the minimum royalty required to be reserved in connection with a mineral lease by a political subdivision of Louisiana pursuant to 1928 La. Acts No. 66. Thirty-four days later, on August 24, 1936, Judge Perez, the Board's statutory and exclusive regular attorney, and Delta-Louisiana, the Board's lessee, entered into an employment agreement for Judge Perez's personal legal services. Pursuant to that employment agreement, Judge Perez was to represent Delta in all matters relating to the Grand Prairie Levee District lease and was to assist Delta-Louisiana in negotiating subleases of that base lease with oil companies. Under the terms of the agreement, Judge Perez was to receive one-half of all cash payments to Delta above $10,000 and any overriding royalty payments above 1/48 which he might negotiate. This employment agreement, which was not publicly revealed until discovery in this lawsuit, created a clear conflict of interest on the part of Judge Perez. As District Attorney of Plaquemines Parish, Judge Perez was the legal advisor to the Grand Prairie Levee District. Pursuant to his employment agreement, however, he was to represent Delta in all matters relating to Grand Prairie Levee Board-Delta leases, which of course included any disputes which might arise between the levee board and Delta. The existence of the employment agreement aligned Judge Perez with the lessee, Delta (a corporation which was almost fully owned by Judge Perez and his wife), [15] to the detriment of his statutory client, the Grand Prairie Levee District. Judge Perez was by then, if not sooner, permanently committed to maintaining the Levee Board-Delta leases rather than representing the levee boards with unwavering fidelity and allegiance. There is no indication that Perez ever informed the Levee Board of his connection with Delta Development Company (as stock owner, or contract counsel). On April 8, 1937, Delta granted its first sublease on Grand Prairie Levee District land to Gulf Refining Company. Under the terms of the sublease, Gulf agreed to pay Delta $500 cash and other valuable considerations for the Grand Prairie Levee District sublease. According to a letter introduced into evidence, the other valuable considerations included a 1/24 overriding royalty interest reserved by Delta (the difference between levee board's 1/8 and the 1/6 provided in the sublease). By virtue of his contract with Delta, Judge Perez was to receive personally one-half of this 1/24 interest, or 1/48, with Delta receiving the other half, or 1/48. Also, the Clerk of Court's conveyance records purportedly reveal that an additional 1/48 overriding royalty was granted by Gulf to A.S. Cain, Jr., an attorney in the law office of Judge Perez, on that sublease. So, by virtue of the sublease Gulf received a net revenue interest of 39/48 (or 13/16). They had given up 9/48, this consisting of 6/48 (1/8) essentially for transmission through Delta to the levee board (original lessor), 1/48 for Delta and 2/48 for Judge Perez (Perez's 2/48 consisting of 1/48, or half of Delta's 2/48 override under Perez's employment contract with Delta, and the 1/48 Gulf granted to A.S. Cain, Jr.). The overriding royalty interest Gulf assigned to Cain was originally to have gone directly to Judge Perez; [16] however, this was changed so that the interest was in fact conveyed by Gulf to A.S. Cain. Cain then transferred this 1/48 interest to Delta-Louisiana on the same day he received it, and in an unrecorded transaction, a counter letter was then signed by Judge Perez and Delta-Louisiana (by its President, Chauvin). In the counter letter, Delta-Louisiana stated it was holding this additional 1/48 received from Cain, for the account of L.H. Perez, the true and lawful owner. Commenting upon the exhibits which indicated a 1/48 overriding royalty interest was initially to go directly to Judge Perez, but was subsequently amended so the interest was conveyed to A.S. Cain, the trial court noted: Well, it is true, these letters do indicate that for some reason Gulf Refining Company is not conveying the 1/48th overriding royalty interest to Mr. Perez as originally intended. They are conveying it to Mr. A.S. Cain, Jr. which would indicate some concealment on the part of L.H. Perez. Delta granted its second sublease to Gulf on Grand Prairie Levee District lands on December 15, 1937. As in the previous transactions, Gulf executed a 1/48 overriding royalty agreement in favor of A.S. Cain, Jr. who then assigned those rights to Delta. Through another counter letter, unrecorded, signed by both Judge Perez and Delta-Louisiana's President, Chauvin, Delta-Louisiana acknowledged that this interest was held for Judge Perez, the true and lawful owner. On June 11, 1938, the Buras Levee District executed two mineral leases covering a large part of its land holdings on the West Bank of the Mississippi River. The lessee was Delta-Louisiana. The consideration flowing to Buras was $1,500 and a mineral royalty of 1/8, the minimum required by statute. As was the case regarding the Grand Prairie leases, Delta-Louisiana entered into an employment contract (a second one) with Judge Perez, on October 11, 1938. Judge Perez was to represent Delta-Louisiana generally with regard to the Buras Levee Board leases and to negotiate subleases. Pursuant to the employment agreement, Judge Perez was to receive one-half of any bonuses and advance royalty payments above $20,000 for each sublease. Additionally, Judge Perez was to receive all overriding royalty interests above 1/48. On December 17, 1938, Judge Perez helped negotiate a sublease of the Buras Levee District lease from Delta to Gulf. Once again, a 1/48 overriding royalty was transferred by Gulf to A.S. Cain, Jr. Cain then assigned the overriding royalty interest to Delta-Louisiana. Delta and Judge Perez then executed another counter letter, unrecorded, which acknowledged that Delta-Louisiana was holding the mineral interest for the convenience of Judge Perez, the true and lawful owner. Then, on February 11, 1939, Delta-Louisiana executed another sublease of the Buras Levee District land in favor of Gulf. As had been the case in the preceding transactions, Gulf executed a separate agreement awarding Cain a 1/48 overriding royalty. Cain then assigned that mineral interest to Delta. Judge Perez and Delta-Louisiana executed another counter letter, unrecorded, acknowledging that Judge Perez was the true owner of that 1/48 overriding royalty interest. Regarding the overriding royalty interests, the parties stipulated as follows: 1) Leander Perez, Sr. acquired overriding royalty interests; 2) The royalty interests were subsequently conveyed by Mr. and Mrs. Perez to the defendants by various inter vivos donations; and 3) The mineral royalty acquisitions and subsequent acts of donation were not filed in the public records of Plaquemines Parish. Commenting on these agreements, the trial court noted: The record of this suit contains no evidence which indicates Judge Perez or his sons ever disclosed to the levee boards or the plaintiff his acquisitions of these overriding royalty interests or his connections with Delta. Such interests were later conveyed by Delta to Judge Perez's wife, who donated them to their children and their spouses. Mrs. Gelpi's children and grandchildren inherited their interests from their deceased fathers. The public records of Plaquemines Parish do not disclose the ownership of Delta's stock, the acquisitions by Judge and Mrs. Perez of the subject 1/48 overriding royalty interests, nor the donations thereof to their children and spouses.... The trial court recognized that the alleged conflicts of interest on the part of the public official Perezes continued for several decades. In its Reasons for Judgment, the trial court noted that miscellaneous unrecorded letters and documents revealed conflicts of interest between Delta and the levee districts where the parties were represented by Judge Perez or his attorney son, Chalin. Such conflicts took place as late as the mid 1960's. [17] According to the trial court, the conflicts appeared in disputes between Delta and its sublessees, wherein Delta was the recipient of benefits which were not disclosed to the levee boards. In fact, Delta's receipt of benefits was in part as a consequence of the Council's foregoing claim to mineral production, without recompense, a matter urged upon them by Judge Perez, who was one of the Council members at the time. The scheme initiated by Judge Perez with regard to the overriding royalty interests seems clear. The oil companies were willing to pay more than a 1/8 royalty interest to procure subleases on the Plaquemines Parish lands. Instead of having the additional royalty interest go to his clients, the Grand Prairie and Buras Levee Districts, Judge Perez, by means of his almost fully owned corporation, Delta-Louisiana, and through employment agreements and unrecorded counter letters, diverted the additional interests to himself and his corporation. For purpose of this exception, breach of fiduciary duty was admitted. A review of the record clearly indicates the manner in which those breaches of fiduciary duty occurred, even though that was simply stipulated, and the case has not yet been tried on the merits.