Is it true what I have been told:
Texas really does not allow royalty owners to bring class actions, and neither does Louisiana.
In Texas, and probably Louisiana, producers get to take all of the deductions for costs after the wellhead. (Operators can deduct ALL costs after the wellhead and charge them to the royalty owners.)
What you have been told is not true. Each lease stands on its on merits. The landmark case on post wellhead deductions is Heritage Resources vs Nationsbank.
Go here: http://www.leagle.com/decision/19961057939SW2d118_11057
This case is now nearly 20 years old and some people just do not get it. It takes a specially crafted royalty provision to avoid the problems in the Heritage case.
As to class action suits, of course they are allowed -- in Texas and Louisiana both. However, in Texas (I have no clue as to Louisiana), getting a case certified as to a class is becoming more difficult.
Best,
Buddy Cotten
Buddy,
I was dearly hoping you would answer. This is such a GREAT site with GREAT people!!!!!!!
Now, I will have to figure out how to gently inform the attorney so I don't hurt his feelings.
Also, as you know this is very important and will greatly help others.
Also consider the difficulty for getting a class action lawsuit that involves leases is the fact that many leases differ (in at least some aspect) from one another. Texas seems to be a stickler about that, which is why you don't see class action suits over lease issues, in my opinion. In a world where all leases were the exact same, Texas would probably allow a class action suit involving lease disputes. Just my two cents.
There are two issues here. First, can you fight post-production deductions? Buddy cited the seminal case for you.
The second, is can you file a class action in Texas to band together and make it more economical? Highly unlikely, largely for the reasons Kitchen mentions. The Texas Supreme court, has NEVER allowed a certification of a class action to stand. In other words, fraud by the nickle is okay in Texas.
If I understand right: It is okay to mount a dead horse, but it's doubtful the horse will take you anywhere.
Please feel free to correct me since I'm always learning and I'd like to get this jello nailed down in my mind.
Bob Malone, Malone Petroleum Consulting
Bob-
Your dead horse is an apt analogy for class actions in Texas.
I suspect that oil and gas companies know that the legal expense of a law suit will far exceed the recovery. They take advantage. Sometimes they don't even seem to have read the original lease. What is the sense of paying for a lease prepared by a competent mineral lawyer if no one reads the lease?
Our leases have been sold and traded about ten or fifteen times now. I doubt the current operator even has a copy of the lease.
Wade,
I really enjoy your knowledge.
Keeping in mind that Louisiana has some different laws, is Louisiana the same as Texas - filing a class action lawsuit is a waste of time? (If I don't ask questions, I deserve what I get - nothing.)
Thanks again,
Bob Malone, Malone Petroleum Consulting
Bob- I don’t know about Loisiana state court. If you are in Louisiana federal court, the 5th Circuit is one of the most hostile circuits to class actions.
Robert, my experience is that the better operators are pretty good about complying with lease terms. It is always a matter of economics. If you are making enough off a lease to make it worth the legal expense to enforce it, then it was worth the expense of drafting it. Also, the real cost of not spending the money to have a lease negotiated by a competent attorney is that you end up with a lease were it is legal to take advantage of you, and companies will enforce their leases.
If it is not economical to sue, the answer is to band together with the other mineral owners on the tract and share the cost to enforce it. You can always just sue individually without trying the class action mechanism.
The mindset that a contract is not worth the paper it is written on, is usually from someone who has dealt with a crooked operator. It happens, but I don’t think you can paint with a broad brush that all lease contracts are worthless.
Wade, I can see why they call you the legal expert. I have a Louisiana client who was pushing me for some legal answers. This is why I like this site so much! Thank you very much for your very respected opinion!
Bob Malone, Malone Petroleum Consulting
Wade, perhaps you are correct. In the past, royalty payments were not made promptly due to "accounting problems." I wrote the legal department of the company, not the royalty disbursement department. I cited that portion of the contract that said any time royalty was withheld for any reason except for title problems, that I was due interest on that money.
Both times I received a check for the interest. Neither my brothers nor my cousins received checks. Maybe it is a question of asking at the right place. The people in the royalty disbursement office never answer back.