This case arises out of a dispute involving royalty payments due under a mineral lease held by applicants, Cimarex Energy Co., Ceniarth, Ltd., Palace Exploration Co., and RZ, Inc. (hereinafter "Cimarex"). Alleging that there were competing claims to the royalty payments, Cimarex invoked a concursus proceeding and deposited the funds into the registry of the court. We granted this writ application primarily to review the lower courts' rulings that Cimarex had no reasonable basis to invoke a concursus proceeding in this case, and thereby unreasonably withheld royalty payments due to respondents, Orange River Royalties, L.L.P., Mission Royalty Quest, LLC, Fort Worth Operating Company, L.L.C., Richard Martter, and Coyote Ventures, Ltd. (hereinafter "Orange River").
Applying the law to the facts of this case, we find that the court of appeal erred in affirming the trial court's ruling in favor of Orange River on its reconventional demand, awarding statutory damages under La. R.S. 31:212.21 et seq. Specifically, we find that the court of appeal erred when it concluded that Cimarex had no reasonable basis to invoke the concursus proceeding.
For the following reasons, we therefore reverse the decision of the court of appeal.
FACTS AND PROCEDURAL HISTORY
The royalties at issue arise from a mineral lease between defendants, Katherine D. Mauboules, et al. ("Mauboules Family") and Cimarex. Various members of the Mauboules family own a tract of land in Vermillion Parish, Louisiana. In October of 1997, the Mauboules sold certain royalty interests in their land to Ereunao Oil & Gas, Inc. ("Ereunao") via five royalty deeds, all dated October 16, 1997.
The deeds executed between the Mauboules and Ereunao provided for a three-year prescriptive period for non-use. However, the deeds also included a prescription interruption clause which allowed off-premise production to maintain the entire royalty. The clause expressly provided:
On November 14, 2001, the Mauboules' attorney, Kenneth Privat, sent a letter to Ereunao noting that the deeds had a three-year prescriptive period and thus had prescribed on October 16, 2000. Privat asked for a recordable instrument evidencing the extinction of the deeds. On November 20, 2001, Charles M. Fife, Jr., President of Ereunao, responded to Privat's letter, noting that although the deeds had a three-year prescriptive period, the deeds also included the prescription interruption clause relative to off-site production.
In 2002, Key Production Company, predecessor to Cimarex, became interested in drilling on the Mauboules property, and contacted Privat to discuss and negotiate a lease. On May 29, 2002, an agent for Key Production sent a letter to Privat, extending an initial offer. Negotiations were difficult and continued over a two-year period, primarily due to Privat's assertions that the prescription interruption clause had been wrongfully inserted into the royalty deeds, possibly as a result of fraud, and that the royalty interests of Ereunao and the interests of its successors had therefore prescribed, and the royalty rights had reverted back to the Mauboules family.
On December 26, 2002, Cimarex continued the negotiations for the lease by making a revised offer to the Mauboules through Privat. In addition to stating the lease terms and price per acre, the offer included additional consideration: if the Mauboules pursued a cause of action against Ereunao, Cimarex would agree to pay up to $7,500 of legal expenses associated with that action incurred during the next twelve month period; and if that cause of action was pursued, but failed, Cimarex would agree to pay a cash bonus of $75,000 to the Mauboules upon 150% payout of the well.
The lease between Cimarex and the Mauboules Family was eventually executed on February 10, 2003.
The Lease Purchase Report between the Mauboules and Cimarex, dated April 10, 2003, included the following note:
Cimarex drilled a successful well and began production in January of 2004.
After receiving Privat's letter, and his phone conversation with Privat, Williams advised Cimarex that the Mauboules were
On April 23, 2004, Williams sent a letter to Privat memorializing their conversation, and confirming that the Mauboules were contending that the provision in the royalty deeds relative to off-tract production was inserted into the deeds "in what amounts to fraud on the part of the vendee," and that the Mauboules claimed that the term of the mineral royalty interest expired and they were entitled to 100% of the mineral royalty interest. Williams further stated that, viewing the matter strictly on the basis of the public records, Cimarex would be entitled to rely on the provisions in the royalty deeds. However, he noted that the assertion that the provision was "slipped in" unbeknownst to the Mauboules raised doubt as to the efficacy of the disputed provision to question whether the royalty interests survived. Thus, Williams stated that he advised Cimarex to suspend payment of proceeds until the dispute between the Mauboules and Ereunao and its vendees could be resolved. Beginning in April of 2004, the Orange River Group ("Orange River"), a group of individuals and businesses who purchase mineral royalty interests for the purpose of investment and re-sale in the producing mineral royalties market,
On June 9, 2004, Cimarex advised Orange River of the Mauboules' adverse claim to the royalty interests, and further advised that Cimarex would be suspending the royalty payments. In August of 2004, Williams advised Cimarex that it would be necessary to file a concursus proceeding, and he received the authorization to do so. However, according to Williams, Orange River's attorney, Kerry Kilburn, asked him to delay the filing.
On November 16, 2004, Kilburn made written demand for payment on behalf of Orange River to Cimarex pursuant to La. R.S. 31:212.21.
After receipt of Orange River's demand, Williams advised Cimarex to deposit the disputed royalty proceeds into the registry of the Court and to file a concursus. On December 20, 2004, Cimarex filed the concursus proceeding which forms the underlying basis of this writ application. Orange River was named as a defendant in the concursus, along with the Mauboules, Ereunao, and Ereunao's assigns.
Orange River subsequently filed a Motion for Summary Judgment, asking the Court to recognize their ownership of the mineral royalty interest at issue, and to award them all unpaid royalties allocable to such interest. In its opposition to the summary judgment, the Mauboules asserted that "the royalty deeds contain error that concerns the Mauboules principal cause of said contracts, and the error may have been induced by fraud." The Mauboules further stated that they had not yet had the opportunity to conduct discovery or depose Ereunao, and thus they could not yet prove that the error was induced by fraud.
On August 22, 2005, the Court granted summary judgment in favor of Orange River, recognizing Orange River as the owners of a certain undivided mineral royalty interest in the land at issue, and ordered the Clerk of Court to release the funds representing owed royalties.
Following a bench trial on Orange River's reconventional demand, the trial court found that Cimarex's reliance on the oral assertion of fraud by Privat was an unreasonable basis to suspend royalty payments, and thus Orange River was entitled to statutory penalties. The trial court entered judgment awarding statutory penalties pursuant to La. R.S. 31:212.23(C),
The court of appeal affirmed the trial court's finding that Cimarex's actions were unreasonable. The court found that Cimarex had no legitimate basis for initiating the concursus, and that it was merely orchestrated as a condition to the Mauboules granting the lease to Cimarex. The court also suggested that, given the history of the Mauboules' claim, the agreement Cimarex made with the Mauboules to obtain the lease violated the "clean hands doctrine." The court further found that Cimarex did not show how the Mauboules' assertions could present a claim that would challenge, much less defeat, Orange River's royalty interest and the public records doctrine. The court reasoned that to file a valid concursus, Cimarex needed to show that the Mauboules had a competing claim against Orange River. But, the Orange River claim was fully supported by the public records and public records doctrine. Thus, while the Mauboules may have a claim against Ereunao for fraud, the Mauboules had no claim to the funds due Orange River. Finally, because the concursus was improperly invoked, the court held that Cimarex was not entitled to immunity for depositing the funds into the registry of the court, and the action of depositing the funds did not constitute payment of the royalties due under the mineral code.
The court of appeal upheld the trial court's calculation of damages and interest. The court agreed that the proper calculation of damages under the statute was doubling the amount of royalties that were due, and adding this amount to the amount of unpaid royalties. The court also agreed that interest on the damages began to accrue on the date of judicial demand, not the date of judgment.
Cimarex (along with Ceniarth, Palace and Zeneco) applied for supervisory writs in this Court, which were granted.
Our decision addresses whether Cimarex properly invoked the concursus proceeding. Specifically, we examine whether the Mauboules' assertions relative to the Ereunao deeds constituted a competing claim, and whether Cimarex, as a stakeholder, was required to determine the merits of the competing claim prior to invoking the concursus.
Prior to its codification, concursus developed through jurisprudence as an equitable remedy.
The Act was incorporated into La. R.S. 13:4811 et seq. La. R.S. 13:4811 was amended and reenacted by La. Acts 1954, No. 523 to provide:
This statute was a codification of the common-law interpleader, and imposed numerous restrictions on the use of concursus, primarily restricting its use to a stakeholder who would deposit funds into the registry of the court. Sarpy, supra at 534; Damson Oil Corp. v. Sarver, 346 So.2d 1304, 1306 (La.App. 3 Cir.1977).
In 1960, the legislature adopted the Louisiana Code of Civil Procedure. In this process, it repealed La. R.S. 13:4811 et seq. and enacted Title X, relative to concursus proceedings, broadening the application of the concursus proceeding. The law governing concursus is set forth in La. C.C.P. arts. 4651 through 4662. The introduction to Title X provides that these articles: (1) codify those jurisprudential rules on concursus procedure which have been found to be useful and workable; (2) broaden the base of the procedural remedy by borrowing some of the broad and flexible principles of federal interpleader; (3) provide workable substitutes for two of the prior rules which experience has proven to be unworkable; and (4) provide, so far as practicable, a single set of rules to govern concursus procedure regardless of the use to which it may be put.
The Code of Civil Procedure defines a concursus proceeding as "one in which two or more persons having competing or conflicting claims to money, property, or mortgages or privileges on property are impleaded and required to assert their respective claims contradictorily against all
La. C.C.P. art. 4652. In enacting this article, the legislature removed the jurisprudential limitations placed on concursus when La. Act 123 of 1922 introduced the concept of interpleader. Further, the language of the first paragraph is based on Federal Rule of Civil Procedure 22(1), which combines interpleader with the bill in the nature of interpleader and removes the former limitations and restrictions on the use of the remedy.
The primary purpose of the concursus proceeding is to protect a stakeholder "from multiple liability from conflicting claims and from vexation attending involvement in multiple litigation in which stakeholder may have no direct interest." Landry & Passman Realty, Inc. v. Beadle, Swartwood, Wall & Associates, Inc., 303 So.2d 761, 763 (La.App. 1 Cir.1974); see also Rehabilitation Concepts Plus, Inc. v. Wills, 42,400 (La.App. 2 Cir. 10/10/07), 968 So.2d 262, 264; Marquez v. Progressive Ins. Co., 2006-1024 (La.App. 3 Cir. 12/6/06), 944 So.2d 876, 878-879. This Court has noted that concursus can be used not only to prevent multiple liability, but also to prevent multiple litigation, and therefore can be used by a person against whom multiple claims are asserted, even though liability on some or even all of the claims is denied. Louisiana Intrastate Gas Corp. v. Muller, 290 So.2d 888, 895 (La.1974); see also Comment, La. C.C.P. art. 4562. Furthermore, the language of Code of Civil Procedure article 4652 also provides that use of the concursus proceeding is allowed even if the stakeholder denies liability owed to one or all of the claimants.
Like the concursus proceeding, federal interpleader was designed to protect the stakeholder. 7 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, § 1702, at 533 (2001). This protection prevents a stakeholder from having to determine, at his peril, which claimant has the better claim. Id. at 534. And, even if the stakeholder denies liability to one or more of the claimants, he is still protected from having to defend multiple suits. Id.
Given the background and purpose of concursus and interpleader, we find that
Contentions of Applicants and Respondents
In short, Cimarex argues that because there were competing claims to the same royalty payments, the concursus was justified. Concursus is properly used as a way for a stakeholder to avoid multiple litigation as well as potential liability. Thus, by depositing the amount of the royalty payments due into the registry of the court, Cimarex should have been relieved of any further liability to the "winning" claimant. Cimarex further argues that a stakeholder should not have to do its own evaluation of the competing claims to decide which have merit before filing a concursus. Concursus law protects stakeholders from liability by putting the burden on the competing claimants, not the stakeholder, to prove the merits of their competing claims, and further protects stakeholders by putting the task of determining which of the claims is entitled to the disputed proceeds in the hands of the court. Without instituting a legal proceeding, there was no way for Cimarex, or its attorney, to investigate the Mauboules' claim. Had Cimarex simply paid Orange River, Cimarex would have risked future litigation, whether ultimately successful or not—the exact situation that concursus is designed to prevent.
Further, Cimarex disputes Orange River's contention that the Mauboules never made an adverse claim and have never asserted fraud. Cimarex points to the preconcursus correspondence between Privat and Cimarex, as well as the Mauboules' opposition to Orange River's motion for summary judgment, in which the Mauboules argue why the issue of error/fraud as to the principal cause of the royalty deeds precluded a judgment awarding the disputed royalties to Orange River. Cimarex points out that there were no factual findings by the trial court that its conduct was a result of fraud, deceit, unconscionability or bad faith. Orange River's argument that Cimarex's conduct was egregious is not based on any factual finding by the trial court.
Once the court accepted the deposit of funds from Cimarex, Cimarex lost control of those funds, and could not have made payment directly to any claimant without direction from the court. Cimarex argues that, pursuant to La. C.C.P. art. 4658, because it made payment of the disputed funds into the registry of the court, it should have been insulated from statutory penalties based on an alleged failure to pay in response to statutory notice.
Orange River argues that the unique facts and circumstances of this case do not require this Court to pronounce a new rule regarding whether concursus is always a reasonable response by a royalty payor to competing claims. Orange River asserts that there was never a true "adverse claim" to justify the suspension of royalties, and that the suspension of royalty payments was prefabricated. The "adverse claim" was only pretext for doing what Cimarex was required to do under its deal with the Mauboules. There was never a bona fide dispute as to Orange River's ownership of the royalty interests and right to payment.
Orange River argues that it was entitled to rely on the prescription interruption clause in the Ereunao deeds to keep its
First, we reject Orange River's assertion that there was no true competing claim made by the Mauboules. The language of Article 4652 allows persons "having competing or conflicting claims" to be impleaded into a concursus proceeding. There is no requirement in the article that claims must be made in a specific format, or with any formality. The Mauboules' written assertions that the Ereunao deeds had prescribed, and the verbal allegations of fraud against Ereunao were sufficient to constitute a competing claim to the royalty proceeds at issue. We find that Cimarex was reasonable in relying on the assertions by the Mauboules that they were entitled to the royalty proceeds. The assertions made by the Mauboules involved more than a mere possibility that a competing claim may be asserted. There was a positive assertion by the Mauboules that they were entitled to the royalty proceeds, whether or not a written assertion of fraud was ever made. Moreover, once the concursus was filed, the Mauboules did not disclaim any interest in the royalty proceeds. The Mauboules answered the petitions, claiming ownership of the disputed royalties, and additionally opposed Orange River's motion for summary judgment, specifically laying out the basis for their claim, and stating that fraud was certainly a possibility, pending further discovery.
Secondly, we hold that Cimarex had no duty to definitively determine whether the Mauboules had any chance of success in pursuing its claim. The use of concursus is not dependent on the merits of the adverse claim. Obviously, in almost all concursus proceedings, the claim of one of the parties will ultimately be found to be invalid. Even if Orange River was correct that its rights were protected by the public records doctrine, it was not the obligation of Cimarex, as the stakeholder, to reach that legal conclusion.
The court of appeal compared this case to its earlier decision in Bank of Sunset & Trust Co. v. A.J. Charlot, 614 So.2d 1386 (La.App. 3 Cir.1993). That case is factually dissimilar. The specific issue addressed in Bank of Sunset was whether service of a Kentucky judgment for spousal support on a Louisiana bank, not made executory in Louisiana, along with a copy of a foreign court order purporting to garnish the bank account of one of the bank's account holders, was sufficient to allow the bank to invoke a concursus proceeding to determine to whom the bank should pay the funds. Bank of Sunset, 614 So.2d at 1387. The trial court dismissed the concursus, finding that the non-executory order of garnishment and its attached judgment did not present the bank with a competing claim. Id. In affirming the trial court's ruling, the court of appeal noted that the only method for enforcement of an out-of-state judgment was by ordinary action in Louisiana with citation and service, and thus the papers served on the bank had no legal efficacy in Louisiana. Id. at 1389. Therefore, on their face, the documents did not show a competing claim. Id. Furthermore, the court reasoned that garnishment procedures were governed by particular Code of Civil Procedure articles, none of which were followed. Id. Moreover, the proper procedure for notice of this type of dispute was governed by a particular banking statute, which provided that the
In this case, there were no specialized statutes requiring a particular form or procedure for the Mauboules to assert a competing claim to the royalty payments. There was no specialized statute giving Cimarex protection if it decided not to recognize the Mauboules' claim. The Mauboules asserted that they were entitled to the royalties because the Ereunao deeds had prescribed. The Mauboules asserted that the prescription interruption clause was inserted into the deeds without their knowledge, possibly as a result of fraud. Thus, because the deeds were prescribed, the Mauboules' assert that Ereunao and its assigns had no right to convey any interest to Orange River. We find that these assertions presented a competing claim sufficient to allow Cimarex to invoke a concursus.
The court of appeal based its decision on the merits of the Mauboules' claim, reasoning that it could not defeat the protections of the public records doctrine. The Louisiana Public Records doctrine generally expresses a public policy that interest in real estate must be recorded in order to affect third persons. Simply put, an instrument in writing affecting immovable property which is not recorded is null and void except between the parties. See Peter S. Title, Louisiana Real Estate Transactions, § 8.1 (2009). The public records doctrine is founded upon our public policy and social purpose of assuring stability of land titles. Camel v. Waller, 526 So.2d 1086, 1089 (La.1988). At the time the Cimarex lease was recorded, the public records doctrine was generally set forth in La. C.C. art. 1839,
The public records doctrine is now generally set forth in La. C.C. art. 3338, which provides:
The public records doctrine has been described as a negative doctrine because it does not create rights, but, rather, denies the effect of certain rights unless they are recorded. Title, supra at § 8.16; Camel, 526 So.2d at 1089-1090; Phillips v. Parker, 483 So.2d 972, 975 (La.1986). In explaining the negative nature of the doctrine, this Court has stated that third persons are not allowed to rely on what is contained in the public records, but can rely on the absence from the public records of those interests that are required to be recorded. Camel, 526 So.2d at 1090 [citing Redmann, The Louisiana Law of Recordation: Some Principles and Some Problems, 39 Tul. L.Rev. 491 (1965)]. The primary focus of the public records doctrine is the protection of third persons against unrecorded interests. Camel, 526 So.2d at 1090; Phillips, 483 So.2d at 976.
Because recordation is not the source of legal rights, Orange River can not simply rely on, and only look to, the public records doctrine to support its position that the Mauboules' claim was not a competing claim for purposes of concursus. While a third party is entitled to rely on the absence from the public record of those interests that are required to be recorded, the public records doctrine does not provide that a third party may rely implicitly on what is shown in a recorded instrument, nor does it provide that a third party who relies on a recorded instrument can acquire good title from a vendor who does not have good title. Redmann, supra at 500 [citing Succession of Rosinski, 158 So.2d 467, 469 (La.App. 3 Cir.1963)]. Regardless of the final resolution of Orange River's ownership of the royalty interests and its right to the royalty payments, the question of whether the Mauboules' claims might affect Orange River's title certainly presented a legitimate basis for Cimarex to fear that Orange River's position possibly might not be protected by the public records doctrine. Simply put, "the rule that what is not recorded is not effective does not mean that what is recorded is effective at all events, despite forgery or any other defect." Redmann, supra, at 501. Even though the general protections of the public records doctrine indicated that the Mauboules had little chance of success, we decline to put the burden on Cimarex to make that final legal determination. Such a determination is properly placed in the hands of the courts.
Moreover, Orange River's ownership rights could not be determined simply by looking at the documents filed in the public records. Orange River's interests are dependent
Furthermore, by focusing on the merits of the Mauboules' claim, the court of appeal focused only on the "multiple liability" purpose of concursus, and ignored the "vexatious litigation" purpose. Even assuming that the Mauboules' claim is tenuous at best, requiring Cimarex to choose which claimant to pay still exposes Cimarex to the costs and risks of defending multiple suits. We find that Cimarex was justified in its fear that it might be later faced with a suit brought by the Mauboules, and its use of concursus to avoid such multiple litigation was proper.
We also reject any contention that Cimarex invoked the concursus in bad faith, or violated the "clean hands" doctrine. This Court discussed the "clean hands" doctrine in City of New Orleans v. Levy:
The record does not support a finding that Cimarex violated the clean hands doctrine, or otherwise acted in bad faith, so as to justify the lower courts' findings that the concursus was improperly invoked. Orange River makes much of the fact that the Mauboules' claims were known to Cimarex at the time the lease was signed, and that Cimarex allegedly made an agreement to suspend the payment of royalties in order to obtain the lease. However, we do not find that Cimarex's actions constituted wrongdoing, nor do we find that its actions prevented the proper invocation of the concursus proceeding. Cimarex admits that it was aware of the Mauboules' contentions about the Ereunao deeds prior to executing the lease. In fact, it was the existence of these claims that caused Cimarex to offer additional consideration to obtain the lease. Otherwise, it seems clear that the Mauboules would have had no incentive or reason to enter into any lease on the property. There was no prefabrication of a claim by the Mauboules. The lease itself did not require Cimarex to
Concursus serves important interests by efficiently resolving potential multiple actions in the same lawsuit, thereby conserving judicial and party resources. It also allows a person subject to the possibility of competing claims to avoid the risk of multiple liability that could result from adverse determinations in different courts. The court of appeal erred in imposing a duty on Cimarex to investigate or evaluate the relative strengths and merits of the underlying claims. The imposition of such a duty undermines the purpose of the concursus proceeding. While we do not go so far as to hold that concursus should automatically be granted whenever it is invoked, courts should allow concursus liberally. In this case, the purposes of concursus were duly served.
The lower courts erred in awarding statutory penalties to Orange River pursuant to La. R.S. 31:212.21 et seq. Cimarex received written demand for payment from Orange River on November 18, 2004. Pursuant to La. R.S. 31:212.22,
For these reasons we find that the court of appeal erred in affirming the trial court's award of statutory damages to
KIMBALL, C.J., participated in oral argument but did not participate in the deliberation of this opinion.
KNOLL, J., dissents and assigns reasons.
KNOLL, J., dissenting.
For the following reasons, I respectfully dissent.
In my opinion, the primary question before the court is simple: did the trial court commit manifest error in finding, as a matter of fact, Cimarex
However, I do find the trial court erred as a matter of law awarding Orange River excessive damages, and would remand for the limited purpose of recalculating the statutory damages award under Mineral Code art. 212.23(B).
A. The Operation of Mineral Code arts. 212.21-212.23
The majority opinion defines the primary issue as whether Cimarex had a "reasonable basis to invoke a concursus proceeding." (Op. at 933). However, there is no provision in the Mineral Code imposing penalties for unreasonably filing a concursus proceeding. The proper question before this Court is whether Cimarex, as a mineral royalties obligor, stated a "reasonable cause for nonpayment" for its failure to pay royalties to Orange River within 30 days of receipt of written notice of default. The relevant articles are as follows:
The procedure set forth in these articles is relatively simple. Once Orange River gives Cimarex written notice and demand for its nonpayment of royalties, Cimarex has 30 days from receipt of notice to either pay the royalties or explain in writing why it will not pay. If Cimarex does not pay within 30 days, and fails to explain why its nonpayment was "reasonable," the court may award double damages, legal interest, and attorneys' fees.
We are left with two questions: 1) Did Cimarex's deposit of funds into the court registry act as the legal equivalent of paying royalties, thereby satisfying article 212.22? 2) If not, did Cimarex state a "reasonable cause" for its nonpayment? The answer to both of these questions is no.
B. Did Cimarex's Deposit of Funds into the Court Registry Satisfy Its Obligation to Pay Under Mineral Code art. 212.22?
The record shows Orange River sent written demand for payment on November 16, 2004, and Cimarex received the notice on November 18, 2004. Cimarex responded that no payments would be made because Mauboles had raised a competing claim to the royalties. On December 20, 2004, Cimarex initiated concursus. The allegedly disputed funds were deposited into the court registry on December 22, 2004.
La.Code Civ. Proc. art. 4658 states: "After the deposit of money into the registry of the court, the plaintiff [in concursus] is relieved of all liability to all of the defendants for the money so deposited." According to Cimarex, under article 4658, the deposit of funds into the registry of the Court constitutes payment under the law and satisfies the requirements of the Mineral Code. We need not resolve this issue at the present time.
Assuming the timely deposit of funds into the Court registry would comply with the requirement of article 212.21 to pay royalties, Cimarex simply missed the deadline. Mineral Code art. 212.21 requires an obligor to pay disputed funds within 30 days of receipt of written notice of a dispute. This is a strict deadline. Cimarex admits it received Orange River's demand notice on November 18th. The allegedly disputed funds were not deposited in the Court's registry until December 22nd, 34 days after Cimarex received notice. Cimarex states no good reason for its failure to file the concursus within the time limits of Mineral Code art. 212.21.
Significantly, Orange River was not made a party to the original concursus proceedings. Orange River was not added to the concursus until Cimarex filed an amended petition on February 3, 2005,
C. Was Cimarex's Failure to Pay "Reasonable?"
Perhaps the most crucial question before this Court is whether the trial court erred in finding Cimarex did not "state a reasonable cause for nonpayment" under Mineral Code art. 212.23(B). Appellate review of a verdict rendered after a bench trial is subject to the same manifest error standard as a jury verdict. Pinsonneault v. Merchants & Farmers Bank & Trust Co., 2001-2217 (La.4/3/02), 816 So.2d 270, 273. The trial court's determination of a party's good faith is highly contingent on credibility evaluations, and is due a high degree of deference. Authement v. Larpenter, 97-0579 (La.App. 1 Cir. 5/15/98), 713 So.2d 712, 715, writ denied, 724 So.2d 771.
Cimarex argues it reasonably believed there were competing claims to the royalty money based on 1) a letter from the Mauboles' attorney, Kenneth Privat, claiming the prescription interruption clause in the contract between the Mauboles and Ereunao was invalid, and 2) a telephone conversation in which Privat suggested there may have been some sort of fraud on the part of Ereunao.
This argument fails both on the facts and on the law. First, the Mauboles never clearly articulated any facts in support of their fraud claim. When "pleading fraud or mistake, the circumstances constituting fraud or mistake shall be alleged with particularity." La.Code Civ. Proc. art. 856. At no point have the Mauboles clearly articulated any claim of fraud; indeed, their pleadings in the concursus proceeding do not even allege fraud. Although Cimarex paid the Mauboles $7,500 to offset their legal fees in a suit against Ereunao, no such suit was ever filed. Presumably the Mauboles realized they did not have sufficient evidence to prosecute any claim against Ereunao. At some point Cimarex should likewise have realized the Mauboles' stated claim was simply bogus.
I also note the mineral royalties in question were due in April 2004, yet the concursus was not filed until December 2004. If Cimarex had believed there was a real dispute over the royalties, it should have filed the concursus when those royalties were due. Instead, Cimarex delayed making payment as long as it possibly could. This illegitimate delay is a clear sign of bad faith on Cimarex's part.
This doctrine was codified in 1984 as Civil Code article 2035:
In Sonnier v. Conner, 43,811 (La.App. 2 Cir. 12/03/08) 998 So.2d 344, writ denied, 6 So.3d 773 (La.2009), plaintiff Lovenda Sonnier was the longtime possessor of three tracts of land with a convoluted chain of title. During the 1980s and 1990s, these tracts of land had apparently been transferred to Rennie and Gloria Sonnier. Plaintiff alleged the acts of sale were simulations and absolute nullities under Civil Code art. 2025. Id. at 348. The tracts were later passed to defendants Andrea Sonnier Conner and Thomas Sonnier, who recorded their interests and transferred the tracts to Diamond McCattle Co., LLC. Id. at 349.
Plaintiff's claim against Diamond McCattle was dismissed based on an exception of no cause of action, as Diamond McCattle was held to be a bona fide purchaser and protected under article 2035. Even if plaintiff proved the prior acts of sales were absolute nullities, this would have no effect on Diamond McCattle:
Similarly, if the Mauboles had been able to prove fraud by Ereunao—which they did not even come close to doing—Ereunao's fraud would in no way affect Orange River's status as a bona fide purchaser. There is no question that Orange River is
Mauboles' alleged claim to the mineral royalties is without factual or legal support, and the trial court did not commit manifest error in finding Cimarex's refusal to timely pay was unreasonable.
D. Does Filing a Concursus Immunize Cimarex from Damages?
Cimarex argues filing a concursus should immunize it from statutory damages. As explained above, this argument fails because Cimarex failed to file the concursus and deposit funds with the court within the thirty day limit set forth in Mineral Code arts. 212.21-23. Moreover, Cimarex's decision to file the concursus was objectively unreasonable because, as has been made clear in the preceding sections, there was neither a factual nor a legal basis for the Mauboles' claim against Orange River and thus no actual controversy over the funds.
We recognize the value of concursus in resolving a dispute involving several bona fide claimants. However, concursus is designed to prevent stakeholders from actual competing claims, not imagined or obviously meritless claims. In Irion v. Standard Oil Co. of Louisiana, 199 La. 363, 6 So.2d 143, 146 (1942), plaintiff obtained a judgment requiring Standard Oil to pay past due mineral royalties. The defendant argued it did not have to satisfy this judgment as other claimants to the money might arise.
Irion is almost directly on point to the present case, as the relevant public records show Orange River is a bona fide purchaser and the sole owner of the royalty interests. This Court also recognized in Irion that a "debtor cannot legally resist payment of the debt to his creditor merely because a third person might ultimately be recognized as having an interest in the money due." Id. Standard Oil's right to a concursus would have arisen only if it "actually feared" competing claims would arise, and the "fact that someone else might have an inchoate interest in the royalties" did not suffice. Id. at 371, 6 So.2d 143 (emphasis added).
Given the strong policy set forth in the public records doctrine and Civil Code article 2035,
E. The Damages Award
The trial court awarded Orange River unpaid royalties of approximately $3.2 million dollars, plus statutory damages of approximately $6.4 million dollars. The court held Mineral Code art. 212.23(B), which allows an award of "damages double the amount due," permits a court to award both the unpaid royalties and penalty damages in the amount of double the unpaid royalties, thereby effectively trebling the damages award. I would reverse the damages award as excessive.
The far more natural reading of article 212.23(B) is to permit the plaintiff a total award of double the amount of unpaid royalties. As a simplified example, if the unpaid royalties total $100, the court has discretion to "double" the award by adding an additional $100 in statutory damages, for a total of $200.
If the Legislature had intended article 212.23(B) to permit a treble damages award, it would have said so. Several Louisiana statutes unambiguously permit an award of treble damages.