180 So. 3d 252
La.2015Background
- Plaintiffs (McCarthy and Moss) sold 1/8 royalty interests in long‑standing Delhi Field Unit leases to Evolution (formerly NGS), receiving modest lump sums based on past royalties. Plaintiffs later learned Evolution had negotiated a $50 million+ resale to Denbury for CO2 enhanced recovery that could greatly increase reserves and value.
- Plaintiffs alleged fraud (affirmative misrepresentation and fraud by silence), error, and breach of contract, claiming Evolution targeted unsophisticated lessors and withheld material information about the Denbury deal and production potential.
- Defendants filed peremptory exceptions of no cause of action; the district court dismissed with prejudice. On first appeal the dismissal was reversed to allow amendment; on remand plaintiffs amended. The appellate court then held the amended petition stated causes of action for fraud by affirmative misrepresentation and fraud by silence and remanded for further proceedings.
- The Louisiana Supreme Court granted review to decide whether the appellate court’s novel cause of action aligns with the Mineral Code, principally La. R.S. 31:122 (Article 122) and Article 17 of the Mineral Code (no rescission for lesion beyond moiety).
- The Supreme Court held Article 122 does not impose a duty to disclose in these circumstances, the allegations about inadequate price amount to prohibited lesion claims under Article 17, and therefore the petition fails to state a cause of action; it reversed the appellate court and reinstated the dismissal with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Article 122 gives rise to a duty to disclose operator’s knowledge (fraud by silence) | Evolution’s operator status and long relationship created a duty to disclose Denbury deal and enhanced recovery plans | Article 122 disavows fiduciary duty and its duties (reasonably prudent operator) do not include disclosure when purchasing lessor rights | No — Article 122 does not impose an affirmative disclosure duty here; fraud by silence not pleaded actionable facts |
| Whether affirmative misrepresentations about value support fraud claim (or rescission) | Evolution misled plaintiffs by emphasizing past decline and offering low prices while knowing true value from Denbury deal | Offers to buy are not guarantees of value; absent fiduciary duty, buyer may use proprietary info; claims of inadequate price are effectively lesion claims barred by Article 17 | No — allegations about insufficient price are functionally lesion claims barred by Mineral Code; affirmative misrepresentation claim fails |
| Whether longstanding lessor/lessee relationship can create a special duty to speak (Emerson) | Emerson supports imposing a duty where relationship rises to a certain level of confidence and repeated dealings | Emerson cannot override Article 122’s clear text; parties could contractually create duties but no such stipulation alleged | No — Emerson does not expand duties beyond Article 122; absent contractual stipulation or fiduciary relationship, no duty to disclose |
| Whether plaintiffs stated a cause of action sufficient to defeat peremptory exception | Plaintiffs contend pleadings, construed favorably, allege operative facts for fraud and rescission | Defendants assert pleadings show only regret over speculative valuation and statutory bar to lesion claims | Held for defendants — on face of amended petition, no legally cognizable cause of action; dismissal reinstated |
Key Cases Cited
- Emerson v. Shirley, 175 So. 909 (La. 1937) (recognized potential duty to speak in some longstanding business relationships)
- Wilkins v. Nelson, 99 So. 607 (La. 1924) (mineral rights valuation too speculative for lesion claims; sellers assume risk)
- Scheffler v. Adams and Reese, LLP, 950 So.2d 641 (La. 2007) (standards for peremptory exception of no cause of action)
- Ramey v. DeCaire, 869 So.2d 114 (La. 2004) (definition and purpose of cause of action for exception review)
- Thomas v. Pride Oil & Gas Properties, Inc., 683 F. Supp. 2d 238 (W.D. La. 2009) (sale price insufficiency for mineral rights held to be lesion claim barred by Mineral Code)