How Not to Secure an Oil Well Lien in Louisiana

Originally published by Charles Sartain.

Co-author Brooke Sizer

Rozel Operating v. Crown Point Holdings, LLC, et al., reminds one of the need to understand and apply the meaning of terms used in a statute one is attempting to enforce. And imaginative theories don’t work without evidence to support them.

Rozel hired Crown Point to salvage a barge, the JMC 109.  Rozel determined that Crown Point wasn’t going to be able to salvage the JMC 109 and terminated their agreement.

Crown Point hired IMR to perform work related to the operation. Reeling from this treachery, Rozel sued Crown Point and IMR.  IMR counterclaimed seeking payment of $876,000 for maritime salvage activities in connection with the barge and filed an oil and gas lien on two wells in Cameron Parish under the Louisiana Oil Well Lien Act.

Rozel argued that IMR had no claim for a money damages because any rights under LOWLA are strictly in rem and that IMR didn’t have a LOWLA privilege.The court agreed; claim for money dismissed.

Whether IMR would have a privilege depended on the meanings of “contractor”, “operator”, and “operations” under LOWLA.

To have a valid lien under LOWLA the lien affidavit must:

• be in writing,
• signed on behalf of IMR,
• provide the claimant’s name and address,
• set forth the amount owed and the nature of the obligation,
• identify the debtor, and
• identify the operator, as listed by the Louisiana Department of Natural Resources.

LOWLA Privilege? No

The court found that IMR did not have a privilege under LOWLA because:

• IMR produced no evidence that Rozel was an operator, lessee, or possessed an operating interest in the two wells listed in its lien affidavit at the time IMR attempted salvage operations.  Rozel produced evidence that it transferred operatorship and ownership in the wells prior to the relevant time.
• There was evidence that the JMC 109 was used as a breakwater for a well that wasn’t listed on the lien affidavit.
• IMR failed to adequately identify the well to which the lien would apply.  A well is “adequately identified” if the statement of privilege gives the name and serial or other identification number of the well; and the name of the field where the well is located as designated by the Commissioner of Conservation.
• Naming wells that Rozel used to own didn’t count.

Judicial estoppel

IMR argued that judicial estoppel prevented Rozel from asserting some of its claims. Two requirements had to be satisfied:

• the party’s position to be estopped must be clearly inconsistent with its previous one; and
• the party must have convinced the court to accept the previous position.

Good theory, except that IMR failed to carry its burden. Moreover, the court couldn’t find a single case in which this doctrine was used to hold a party personally liable for an unpaid debt. Claim dismissed.

Mandatary who exceeds authority

Next claim: Crown Point was Rozel’s mandatary who exceeded its authority by entering into an agreement with IMR to retrieve the JMC 109, but Rozel ratified the act. A mandatary who exceeds his authority is personally bound to the third person with whom he contracts unless that person knew at the time of the contract that the mandatary had exceeded his authority, or unless the principal ratifies the contract.

Good theory, except that there was no evidence that Rozel had conferred authority on Crown Point to transact one or more affairs for Rozel.  Claim dismissed without further support.

In short: IMR had no privilege and IMR had 30 days to remove the liens on the wells.

D. L. Menard RIP

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