Energy Law

Louisiana Second Circuit Court of Appeal Dismisses Claim for Unjust Enrichment for Receipt of Royalty Payments in Excess of Ownership Interest: Hall v. James, 43,263-CW (La. App. 2 Cir. 6/4/08), 986 So. 2d 817

On July 12, 1996, the Jameses purchased immovable property from Gray Investments, a corporation owned by Leon Gray, Sr. and his wife, Mary Gray. The deed conveyed to the Jameses one-half of the royalties and mineral interests in the property and reserved the other one-half to Gray Investments. Division orders were prepared by Kelley Oil Corporation, a predecessor-in-interest to Samson, and the Jameses began receiving royalties. When Mr. Gray died, his heirs inherited certain property, including the right to receive royalties on the property purchased by the Jameses. The heirs discovered that the Jameses had been receiving one-half of the total royalties owned by and owed to Gray Investments rather than the one-half due them for royalties on the property they purchased. 

As a result, the heirs filed suit against the Jameses and Samson, as successor-in-interest, to Kelley Oil Corporation, for recovery of mineral proceeds, claiming that the Jameses were unjustly enriched by receiving royalty payments in excess of their ownership interest in the subject property. The trial court denied the exceptions of no right of action, no cause of action, and prescription. Thereafter, the Jameses’ application for supervisory writs was granted and the Second Circuit granted their no cause of action. The Jameses argued that the plaintiffs had no cause of action against them because there was no privity of contract between plaintiffs and them; instead, each party had a contract with Samson for the payment of royalties. Thus, the Jameses contended that the plaintiffs should have only filed suit against Samson for overpaying royalties to the wrong party.

Relying on Louisiana Civil Code article 2298, which provides that unjust enrichment is a remedy of last resort, available only when no other remedy is available, the court found that since the plaintiffs had a cause of action against Samson to recover for the underpayment of royalties to them and overpayment to the Jameses, the requirement that the plaintiffs have no other remedy at law was not satisfied. Accordingly, the court held that the plaintiffs had no cause of action against the Jameses, and thus reversed the trial court’s judgment denying the exception of no cause of action. Such a ruling rendered the exception of prescription moot.

Full post as published by The Energy Law Blog on December 22, 2008 (boomark / email).