In Mineral Lease Conflict, the Supreme Court of Louisiana Fills a Gap in Louisiana Obligations Law

When Gloria’s Ranch, L.L.C. v. Tauren Exploration, Inc., et al. arrived before the Supreme Court of Louisiana for the second time in the Spring of 2020, the main issues that defined the controversy were resolved: the three defendants–Tauren, EXCO, and Cubic–were solidarily liable to Gloria’s Ranch for damages arising from non-compliance with Mineral Code articles 206 and 207 (obligation of owner of expired mineral lease to furnish recordable act evidencing extinction and effect of failure to do so). Through a settlement, EXCO was released from liability and its portion of the debt extinguished. Later, Cubic became insolvent leaving Tauren as the only remaining solvent obligor.

Generally, when a co-obligor becomes insolvent, its portion of the debt is divided up equally among the other solidary obligors. La Civ. Code art. 1806. However, because EXCO’s debt had been remitted by Gloria’s Ranch, it was no longer an obligor required to pay a portion of Cubic’s debt. This perfect storm of facts brought a novel issue under Louisiana’s Law of Obligations to the steps of the state’s Supreme Court. When a solidary obligor is insolvent, how should its share of the debt be allocated when the obligee had previously remitted another co-obligor from the debt? Its novelty did not make it any less consequential to the parties: Tauren’s liability would be reduced by over $4 million if it was correct that a portion of Cubic’s debt should be allocated to the obligee itself, Gloria’s Ranch.

Although Gloria’s Ranch argued that Tauren should be responsible for the entirety of Cubic’s portion, Tauren argued that it should be liable for only one half of Cubic’s portion. The other half, Tauren asserted, should be borne by Gloria’s Ranch itself. Tauren’s argument was simple: had Gloria’s Ranch not remitted EXCO, EXCO would still be around to share the burden of Cubic’s debt. Because Gloria’s Ranch effectively eliminated Tauren’s ability to share Cubic’s debt with EXCO, Gloria’s Ranch should be forced to eat the loss of that portion.

The difficulty in making this argument before the courts was that the Louisiana Civil Code is silent on the issue and Louisiana’s courts have never considered it. In such a situation, it is imperative that the lawyer handling the case understands Louisiana’s Civilian methodology and looks for support in both the Revision Comments to the Civil Code and scholarly writing from Louisiana and other Civil Law jurisdictions. Fortunately for Tauren, such support did exist in this case. Tauren’s team at Gordon Arata Montgomery Barnett recognized the persuasive nature of both the comments to the Code and the writings of Louisiana’s legal scholars.

In the Civil Law Treatise on Obligations, Professor Scalise writes: “The obligee who remits the debt in favor of one of his solidary obligors shares in the loss resulting from the insolvency of another by losing the amount the remitted obligor would have had to contribute had he not been favored by a remission of the debt.” Litvinoff and Scalise, 5 La. Civ. Law Treatise, The Law of Obligations, 2 ed. (2001), §7.83. Further, Louisiana Civil Code article 1803, Revision Comment (d) states, “In case of insolvency of a solidary obligor after the obligee has remitted the debt in favor of another, the loss must be borne by the obligee.” If these quotes sound exactly like the argument Tauren sought to make, that is because it is exactly the same argument. However, after this argument failed before the trial court and the Second Circuit Court of Appeal, Tauren asked the Louisiana Supreme Court to review the case. Agreeing with Tauren, the Revised Comments, and the Civil Law Treatise, the Supreme Court granted the writ application and, without scheduling oral arguments, reversed and rendered based solely on Tauren’s writ application.

There are many lessons to take from this case. For obligees, this case is a cautionary tale: remitting a co-obligor could reduce your total recovery if one or more remaining co-obligors become insolvent. For solidary obligors, this case might provide an incentive to secure a remission from debt before a co-obligor becomes insolvent and increases the amount you owe. And for practitioners, this case is a reminder that the comments to the Code and the scholarship of legal thinkers past and present remain vital components of Civilian legal practice.

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