McCarthy v. Evolution Petroleum Corp.
111 So. 3d 446
La. Ct. App.2013Background
- Plaintiffs McCarthy (individually and as trustee) and Moss sue Evolution Petroleum (formerly NGS) and NGS Sub. Corp. for rescission of Delhi Field Unit royalty rights, damages, and attorney fees on fraud and error theories; trial court granted no cause of action.
- Court held the petition can be amended to state a cause of action under La. R.S. 31:122 due to mineral-lessee duties, though current pleading lacks a viable theory.
- Leases in Richland Parish date to before the Haynesville era; rights have been held active with production and regular royalty payments for decades.
- Defendants purchased the Delhi Field Unit rights in Sept. 2003 for $2.8 million; production rose from about 18 to 145 barrels/day in the following years.
- In 2004–2006 defendants pursued Denbury Resources for a sale of the Delhi Field Unit; Denbury deal reportedly valued at $50 million; a May 9, 2006 press release described residual 4.8% royalty for NGS with potential 25% working interest after $200 million net cash flow.
- Petition alleges unsolicited offers to buy royalties without disclosing the Denbury deal or the recoverable reserves; plaintiffs claim targeted exploitation of vulnerable or unsophisticated owners; payments received under the offers were small relative to potential reserves.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud requires duty or confidence and material misrepresentation | McCarthy/Moss relied on long relationship and disclosures. | No fiduciary or confidence duty; misrepresentations not material. | Fraud claims insufficient; no valid duty or material misrepresentation shown. |
| Error as to cause as to recoverable reserves | Error as to value and existence of Denbury deal affected consent. | No substantial influence on consent; no causal link. | Error claim not viable as pleaded; however amendment may cure. |
| Breach of contract from nonpayment after sale | Payments ceased post-offer; breach of original leases. | Ownership transfers on agreement; post-sale payments not required. | No breach of contract stated under current pleadings. |
| Whether amendment under La. R.S. 31:122 is appropriate | Duty to act as reasonably prudent operator may require disclosure. | RS 31:122 not satisfied by existing allegations. | Amendment permitted to state a claim under RS 31:122. |
Key Cases Cited
- Bogues v. Louisiana Energy Consultants, LLC, 71 So.3d 1128 (La.App.2d Cir. 2011) (no-cause-of-action review uses pleaded facts to establish remedy)
- Cascio v. Twin Cities Development, LLC, 48 So.3d 341 (La.App.2d Cir. 2010) (error-as-to-value/mandatory disclosures related to mineral leases)
- Skannal v. Bamburg, 33 So.3d 227 (La.App.2d Cir. 2010) (relation of confidence requiring full disclosure of information)
- Thomas v. Pride Oil & Gas Properties, Inc., 633 F.Supp.2d 238 (W.D.La. 2009) (federal-leasing context; duty to disclose in initial negotiations)
- Wadkins v. Wilson Oil Corp., 199 La. 656, 6 So.2d 720 (1942) (old precedent on duty to develop known producing formation)
- Carter v. Arkansas Louisiana Gas Co., 213 La. 1028, 36 So.2d 26 (La. 1948) (lease duties; prudent development and mutual benefit)