Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—La. Sup. Ct.: Discovery violations did not rise to the level of an unfair trade practice, (May 8, 2014)

By Jody Coultas, J.D.

A trial court erred in finding a violation of Louisiana Unfair Trade Practices Act (UTPA) and awarding damages because the challenged discovery violations of the defendants did not rise to the level of an unfair trade practice, the Louisiana Supreme Court has held (Quality Environmental Processes, Inc. v. I.P. Petroleum Co., May 7, 2014, Guidry, J.).

Property owners conveyed a 30% mineral interest in their property to Quality Environmental Processes, Inc. The property owners’ purchaser of the property acknowledged that “the oil, gas and other minerals lying in, on or under the subject property ha[d] been previously conveyed.” However, they claimed there was no valid mineral servitude encumbering the property at the time of the purchase and, thus, they acquired 100% of the mineral rights in the subject property as a result of the cash sale.

A 1966 mineral deed identified and conveyed a mineral servitude from the then owner of the property. IP Petroleum successfully drilled and produced a well on the property. Quality and the property owners stated that they immediately began receiving all royalties from the production of that well through 1997 when IP Petroleum halted payments. IP Petroleum stated that the royalties from the well were paid to the owners of the 1966 mineral servitude.

Quality and the property owners asserted the 1966 mineral deed did not create a valid mineral servitude and sought to be declared as owning 100% of the mineral rights since their purchase of the subject property by act of cash sale in 1992. They also asserted a violation of the UTPA based on acts by I.P. Petroleum’s attorney and the law firm that represented it in other actions that allegedly amounted to a tortious conspiracy to deprive the plaintiffs of the royalties due them from a production well I.P. Petroleum operated on the property.

The 1966 mineral deed was sufficiently specific to identify the property to be conveyed and, thus, to create a valid mineral servitude and to place third parties on notice of the existence of that servitude. Therefore, Quality and the property owners did not acquire the mineral rights to the property via the 1992 cash sale.

I.P. Petroleum’s attorney and law firm did violate the UTPA, according to the court. Quality alleged that I.P. Petroleum engaged in discovery violations in other actions between the parties, failed to reveal that royalties claimed by the property owners were being held by others, and failed to provoke a concursus proceeding as required by an agreement regarding the tender of royalties violated the UTPA.

To state a UTPA claim, a plaintiff had to show the alleged conduct offended public policy and was immoral, unethical, oppressive, unscrupulous, or substantially injurious. Elevating a discovery dispute to the level of a UTPA violation was unprecedented, and the UTPA was not intended to ensure ethical and fair cooperation between attorneys litigating a case. Although the attorney and law firm might have violated rules pertaining to ethical conduct, the conduct at issue did not violate the UTPA. The UTPA protects against egregious actions of fraudulent, deceitful, and unfair business practices to promote and foster healthy and fair business competition, the court explained.

The cases are Nos. 2013-C-1582, 2013-C-1588, and 2013-C-1703.

Attorneys: A. J. Gray, III (The Gray Law Firm) for Quality Environmental Processes, Inc. H. Alston Johnson III (Phelps Dunbar LLP) and Brent B. Barriere (Fishman Haygood Phelps Walmsley Willis & Swanson LLP) for IP Petroleum Co., Inc. W. Shelby McKenzie (Taylor, Porter, Brooks & Phillips, LLP) for Hammond & Mintz, LLP.

Companies: Quality Environmental Processes, Inc.; I.P. Petroleum Company, Inc.

Cases: StateUnfairTradePractices LouisianaNews