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Fifth Circuit Upholds Dismissal of Louisiana Property Owner’s Suit Against Oil Company

Case:  Guilbeau v. Hess Corp.
            U.S. Fifth Circuit Court of Appeals
            854 F.3d 310 (5 Cir. 2017)

In this case, Hess Corporation’s predecessor conducted oil operations on property located in Louisiana until 1971 and its oil and gas leases expired in 1973. In 2007, Kenneth Guilbeau purchased the property on which the operations had been conducted. The wells at that time were plugged and abandoned. Additionally, the sale in 2007 did not include any assignment of rights to sue for pre-purchase damages. Guilbeau later brought suit against Hess for damages based on contamination caused by the previous oil and gas related activities on the tract. Hess moved for summary judgment arguing that Louisiana law barred Guilbeau’s claim for damages occurring prior to Guilbeau’s purchase of the property. The Motion for Summary Judgment was granted by the District Court pursuant to the jurisprudential subsequent purchaser rule. Guilbeau appealed.

On appeal, the Fifth Circuit looked to the Louisiana Supreme Court’s decision Eagle Pipe and Supply, Inc. v. Amerada Hess Corp., 79 So.3d 246 (La. 2011), wherein the Court discussed legal principles regarding the subsequent purchaser rule, as well as the rule’s development in Louisiana case law. The Louisiana Supreme Court stated “the subsequent purchaser rule is a jurisprudential rule which holds that an owner of property has no right or actual interest in recovering from a third party for damages which was inflicted on the property before his purchase, in the absence of an assignment or subrogation of the rights belonging to the owner of the property when the damage was inflicted.” The Fifth Circuit then noted the Supreme Court in Eagle Pipe clarified that damage to property creates a personal right to sue, which unlike a real right does not transfer to a subsequent purchaser in the absence of an assignment subrogation. Thus, a current property owner would have no right to sue to recover from a third party for property damages caused prior to his purchase. In the previous Eagle Pipe decision, the Louisiana Supreme Court noted, after discussion of the purposes and principles of the subsequent purchaser rule, that it was expressing no opinion as to the applicability of the holding to fact situations involving mineral leases or obligations arising out of the Middle Code.

Guilbeau argued that Court’s comment created uncertainty about the applicability of the subsequent purchaser rule to mineral leases. The Fifth Circuit disagreed and pointed out that a clear consensus had emerged among all Louisiana appellate courts, which have held that the subsequent purchaser rule does apply to cases like the one before it, involving expired mineral leases. After discussing recent cases from the First Circuit Court of Appeal, the Second Circuit Court of Appeal and in a recent decision from the Third Circuit Court of Appeal, Boone v. Conoco Phillips Co., 139 So.3d 1047 (La. App. 3 Cir. 2014), where the court noted under the reasoning of Eagle Pipe, a new owner of a property does not have a right of action against the sellers’ lessee without a valid assignment. The Fifth Circuit. after citing yet another Third Circuit Court of Appeal decision, Bundrick v. Anadarko Petrol. Corp., 159 So.3d 1137 (La. App. 3rd Cir. 2015), pointed out the Third Circuit applied the subsequent purchaser doctrine to a mineral lease under facts similar to those in the case before it. The court in Bundrick explicitly acknowledged that the subsequent purchaser rule applied in matters involving mineral leases.

The Fifth Circuit in Guilbeau concluded that the above cases demonstrated a clear consensus supporting the application of the subsequent purchaser rule to cases involving mineral leases. As such, the Fifth Circuit affirmed the District Court’s holding that the subsequent purchaser doctrine barred Guilbeau’s claim.

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